Tankers: Oil Supply to Remain Limited, but Not For Long
According to Gibson, “the group’s reluctance to raise output might seem political but their policy is also guided by data. OPECs internal research body is forecasting an oil surplus due to softening seasonal demand in Q1 22. However, as demand continues to recover, OPEC may have to adjust their strategy. It may just not be as fast as the US, India and Japan might like. So, it seems that the US is not a lone voice in highlighting that restricted supply could have a negative economic impact. If there is a supply problem, why, as one of the world’s largest oil producers, isn’t the US doing anything about it? Many would have thought the higher prices which have persisted for much of the year would have stimulated drilling activity. However, with many producers taking a more conservative approach, and many locked into hedges, there has yet to be a notable increase in US output, although this is forecast to change next year. Biden could of course introduce incentives to encourage domestic oil output, but this would be very much at odds with his climate credentials”.
The shipbroker added that “there is also the question of the outcome of COP26, where the US discussed plans to reduce carbon emissions. How will the US balance being a major oil producer as well as reducing emissions? Pressure to transition away from an oil economy has added extra complications. The Biden administration adopted a hostile position to the fossil fuel industry in the hope that high oil prices would speed up the transition to renewable energy. However, this position has been seen as detrimental to the popularity of the President. Biden now has the added complication of high pump prices, a real ‘no’ in the US. Without a corresponding increase in supply, oil and gas prices may continue to find further support. The passing of the much anticipated $1 trillion infrastructure bill might in the long-term steer demand away from the oil with investment in electric vehicle charging, and greener public transportation. However, in the short term, the economic boost is likely to provide tailwinds to overall oil demand. So, Biden has a difficult task on his hands. Keep energy affordable for the electorate in the short term, whilst at the same time pivoting the country to a greener future. For the tanker market, in the medium term this means more oil, but in the longer term the picture is much less certain”, Gibson concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide