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

Oil prices are expected 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 bounced back to pre-Covid levels quickly, “but supply is having a harder time catching up,” said Joseph McMonigle, secretary general of the International Energy Forum, adding that the only factor driving down prices at the moment is fears of a recession.

“So, for the second half of this year, we have serious problems with maintaining supply, 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 major industrial economies (G20) in Goa, India, on Saturday.

McMonigle attributes the increase in oil prices to growing 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,” said the Secretary General.

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

“We are going to see much steeper reductions in inventory, which will be a signal to the market that demand is definitely picking up.” So you’ll 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 act and increase supply, if the world ends up in a “significant supply-demand imbalance.”

“They are very careful about demand. They want to see evidence that demand is building, and that they will respond to changes in the market.”

Brent crude futures for September delivery last settled at $81.07 a barrel on Friday’s close, 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 the European energy market to a warmer than expected winter in 2022.

“The weather was probably the luckiest thing that happened,” he said, but warned that it’s not just this winter, [but] the next winter or so” could be rocky.

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

Once “said” about it, energy security has now become the main focus of summits such as the G20, said McMonigle.

“Certainly we must continue with the energy transition, and all options must be on the table,” he said, adding that prices and volatility in the energy markets must be closely monitored.

“I am concerned that if the public begins to associate high prices and volatility in energy markets with climate policies or energy transition, we will lose public support,” he said.

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