The long-awaited, much-anticipated energy market recovery has begun, Baker Hughes CEO Lorenzo Simonelli said on Monday during CERAWeek, according to Reuters.
The oil and gas industry suffered last year as the coronavirus pandemic knocked out demand as people hunkered down and stayed home, stifling travel. Since March 2020, the industry has been keeping a close eye on oil demand and oil inventories—metrics used to gauge the overall supply and demand balance.
During this time, willful participants like OPEC+ have engaged in aggressive oil production curtailments designed to restore this balance, while other producers like the United States cut production not as a concerted effort, but because inventories were sky high and prices were severely depressed.
But when oil demand dipped to the degree it did in 2020, all these oil production cuts were not enough to bring a quick balance to the market.
But now that OPEC+ has withheld billions of barrels of oil from the market and a new vaccine optimism has spread throughout the globe, the supply situation is finally starting to tighten. Oil inventories in the United States—the most visible oil market in the world—has now returned to five-year average levels in a sign that balance is imminent.
“As you look at supply and demand equation, we’re seeing that there will be a recovery in 2021 with an even more balanced market going into 2022,” Simonelli said.
While the worst may be behind us, we are not out of the woods just yet. Oil prices slumped on Monday on fears that OPEC+ may decide this week to loosen their supply restrictions as of April 1, and on Chinese factory throughput that slumped in February to a shocking nine-month low.
There are also rumors that China’s strategic oil reserves are full-up, and as a result, its imports may drop off.