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International Energy Agency (IEA) expects oil demand for 2022 to reach 99.2 million barrels per day (mbpd), increasing to 101.3 mbpd in 2023 to exceed pre-Covid high of 100.2 million bpd set in 2019.
S & P Global expects oil prices to stay high in the near term. “We foresee that Brent price will remain well supported in our base case at above US$100 per barrel on average for the next two years,” said Mr Ethan Ng, Director, Oil Markets, Midstream & Downstream Consulting, S&P Global Commodity Insights. On average Brent was trading at US$71 per barrel in 2021.
But he does not expect prices to skyrocket though Covid-19 may spring some surprises, as the resurgence in Asia has shown. “Covid-19 affects demand acutely, whereas the Russia- Ukraine crisis mainly pertains to the supply side. Covid-19 resurgence obviously is hard to predict especially if you look at China and more recently - Japan. We are actually seeing a worse situation than last year even though the rest of the world seems to have come out of the pandemic conditions by now.”
The elevated prices will underpin the profitability of industry majors in the months ahead, especially those who are supplying LNG. LNG prices have spiked as European countries like Germany and Italy, which were heavily dependent on Russian gas, are trying their levelled best to switch to LNG to replace missing Russian gas imports piped overland.
Shell is the world’s largest LNG trader with over 40 LNG carriers while Chevron is managing nearly 150 terminals and has stakes in some of the biggest LNG development plans, such as the Gorgon Project in Australia.
Tight capacity bolsters
margins for refineries
Consumers are suffering pain at the pump as fuel prices which were elevated even before Russia invaded Ukraine have soared since mid- March outpacing the increase in crude prices, and the shortfall in refining capacity to process crude into petrol and diesel is to be blamed.
As Shell’s global chief executive Ben van Beurden told reporters in June 2022, there were several reasons for the decline in refining capacity. “First of all, companies like us have started to shut down refineries, partly to convert them into biofuel facilities.”
In Singapore Shell has halved its refining capacity at Pulau Bukom to lower its carbon
emissions. In 2021, Shell succeeded in reducing carbon emissions by four million tonnes from its worldwide operation of which 580,000 tonnes were from Bukom.
China, which has the highest refining capacity in the world, has restricted exports of refined products for domestic reasons, while sanctions on Russia have resulted in lost refining capacity and fuel supply.
As for the US, second only to China in capacity, not all the refineries which shuttered during the pandemic-induced recession in 2020 have reopened. Some are closed for good as the US is going through an energy transition from fossil fuels to renewables. The present refining capacity is estimated to be about a million barrels a day below what it was before the pandemic.

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