Analysts expect prices to be softer than in 2021 due to increasing global supply and virus concern
Crude oil prices are expected to be subdued in the early months of 2022 compared to the relative strength of 2021.
That’s according to a report from Deloitte which cites growing global supply as investment returns to the sector, together with demand concerns due to the pandemic, especially with the new variant.
The first quarter is likely to see prices held down by the release of strategic supplies from several countries and an increase in output from OPEC+ members.
“The drop in crude oil prices we started to see in the final weeks of 2021 will likely continue for a while as more supplies flow into the system,” said Andrew Botterill, national Oil, Gas & Chemicals leader at Deloitte Canada. “It’s unusual for strategic reserves to be used to try to lower prices, but with domestic oil production in the United States still below pre-pandemic levels it’s a way that governments can try to moderate the rising cost of petroleum products such as gasoline which has been adding to concerns about inflation.”
For Canadian oil, increased production domestically and by OPEC+ has pushed up the differential between WCS prices and those for WTI by almost 200% since November 2020, bringing them closer to historical values.
Natural gas prices are expected to be supported by winter demand although North America has seen prices weaken recently. This is not the case in Europe where prices are at or near record highs.
Carbon reduction
The oil and gas sector has a unique part to play in carbon reduction and the energy transition. Deloitte’s assessment is that great investment will be required in areas such as carbon storage, biofuels, and hydrogen.
“Many companies in the sector have the capital and resources to make important investments to fund decarbonization projects, as well as the technical and commercial experience to develop large, complex engineering projects,” said Botterill. “It’s important that governments and investors build on the momentum already created by the oil and gas sector if Canada is going to meet its commitment to carbon neutrality by 2050.”
