This year, the price of a barrel of oil will reach $80, as oil demand will rise again. Still, producers will not respond immediately to the necessary proposals, said Khayal Ahmadzadeh, CEO of SOCAR Trading SA, a Swiss subsidiary of the State Oil Company of Azerbaijan (SOCAR).
According to him, in 2020, the excess oil reserves created in response to the pandemic will be entirely exhausted by summer:
“During this period, the rapid growth in the price of steel used in the production of pipes, wells, and fittings and the high capital cost for producers will prevent a meaningful supply response from the already difficult industry, despite the return of demand.”
“I will not be surprised if I see oil in the spring or until the end of the year above $80 and $100 per barrel in the next 18-24 months,” Ahmadzade said.
He noted that SOCAR has already sold all the 15 million barrels it stored during the crisis:
“The increase in steel prices will make it difficult for oil service contractors to recover production on time and to build the pipelines, wells, and other infrastructure required by the budget. It will slow down the supply response, even if demand returns as countries move out of quarantine and other restrictions. We can see a shock in the industry due to very high steel prices,” he noted.
Ahmadzadeh said he expects the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, to gradually increase production and return to full capacity as soon as possible. However, he said that would not be enough.
Even with production in Saudi Arabia and Texas, there are fears of oil shortages in 12 months: “It will increase prices very quickly.”