Oil markets to face ‘serious problems’ as demand rises: IEF

Oil prices are set to rise in the second half of the year as supply struggles to meet demand, according to the secretary general of the International Energy Forum.

Oil demand quickly returned to pre-Covid levels, “but supply is having a tougher time catching up,” said Joseph McMonigle, secretary general of the International Energy Forum, adding that the only factor moderating prices right now is the fear of a looming recession.

“So, in the second half of this year, we’re going to have serious problems keeping supply up, and as a result you’re going to see prices respond to that,” McMonigle told CNBC on the sidelines of a meeting of energy ministers from the Group of 20 leading industrialized economies (G20) in Goa, India, on Saturday.

McMonigle attributes the pressure on oil prices to increasing demand from China – the world’s largest importer of crude oil – and India.

“India and China together will account for 2 million barrels per day of demand growth in the second half of this year,” the secretary-general said.

When asked if oil prices could once again rise to $100 a barrel, he noted that prices are already at $80 a barrel and could potentially go higher from here.

“We’re going to see much more steep declines in inventory, which will be a signal to the market that demand is definitely picking up. So you’re going to see prices respond to that,” McMonigle said.

However, McMonigle is confident that the Organization of the Petroleum Exporting Countries and its allies – collectively known as OPEC+ – will take action and increase supply if the world eventually succumbs to a “major imbalance between supply and demand”.

“They are very cautious about demand. They want to see evidence that demand is picking up, and will be responsive to changes in the market.”

Brent crude futures for September delivery last settled at $81.07 a barrel late Friday, while West Texas Intermediate crude for September delivery ended the trading day at $76.83.

McMonigle also spoke about the liquefied natural gas market, crediting the stability of Europe’s energy market to a warmer-than-expected 2022 winter.

“The weather was probably the luckiest that’s ever happened,” he said, but warned that “it’s not just this winter, [but] the next couple of winters” which could be rocky.

Global policymakers cannot become complacent just because LNG prices have fallen, and more investment in renewable energy is needed to ensure the lights stay on, he said.

Once “whispered about,” energy security has now become the main focus of summits like the G20, McMonigle signaled.

“We must definitely continue to pursue the energy transition and all options must be on the table,” he emphasized, adding that prices and volatility in energy markets must be closely monitored.

“I’m concerned that if the public starts to link high prices and volatility in energy markets to climate policy or the energy transition, we’re going to lose public support,” he said.

“We’re going to ask the public to do a lot of difficult and challenging things to make the energy transition possible. We need to keep them on board.”