Dan Yergin on expected oil demand during the rollout of the Covid-19 vaccine, cases

SINGAPORE – The OPEC oil producers group has left its forecast for 2021 for crude oil demand growth unchanged based on expectations of an economic recovery. But that could change, warns energy expert Dan Yergin.

Yergin, vice chairman at IHS Markit, told CNBC on Friday that much depends on how effective the coronavirus vaccines are and whether the number of Covid-19 cases continues to rise.

Hopes for greater demand for oil were also lifted on Thursday when US President-elect Joe Biden released a hefty $ 1.9 trillion Covid-19 bailout package designed to support households and businesses.

In addition to the stimulus package, two factors have fueled optimism, Yergin said. “There are two other things that go along with it … one, of course, is vaccinations – in the sense that eventually this crisis will end and maybe the spring lockdowns will be over.”

“The other is what Saudi Arabia did. This is the third time that Saudi Arabia has made a sudden policy change in less than a year, and this one was to announce that (the) 1 million barrels per day are being cut – in part – because they are concerned about the impact of the increase in virus that is occurring, ”he said.

OPEC members and their non-OPEC allies, an alliance called OPEC +, reduced oil production by a record amount in 2020. They did this in an effort to support prices as the global restrictions of Covid-19 and the subsequent plunge into air travel led to a shock in fuel demand.

Saudi Arabia, the world’s largest oil exporter, has since said it plans to cut production by an additional 1 million barrels per day in February and March to avoid building up stocks.

Yergin said both the vaccine rollout and supply constraints have come together to “take oil prices out of what I called virus lane and try to recover by 2021.”

Oil prices are currently on track for their third consecutive week of hike. US crude oil was $ 53.08 in Asia on Friday, up more than $ 48 a barrel at the end of December, while Brent crude oil was $ 55.69 on Friday, compared to over $ 51 at the end of December.

OPEC said it expected global oil demand to increase by 5.9 million barrels per day year-on-year by 2021 to an average of 95.9 million barrels per day. The forecast was unchanged from last month’s review.

In a report on Thursday, it said its forecast for 2021 assumes “a healthy recovery in economic activities, including industrial production, an improving labor market and higher car sales than in 2020”.

However, Yergin warned that the demand for oil would depend on how the virus situation develops.

If the coronavirus surge continues and “if the vaccines weren’t as effective as thought, demand would weaken again, and that would show in price,” he told CNBC’s “Squawk Box Asia” on Friday. “But there is clearly optimism in the oil price.”

The time has come for the “second revolution” for American shale producers, Yergin said. The industry’s drilling boom had catapulted America to the position of the world’s largest oil producer in 2018.

“This is the second revolution for shale, which is to give back money to investors. (They are) in a better shape to do that. Now that you will see consolidation, you will see continued efforts to reduce costs,” he said .

“So I think we’ll see American shale start creeping back into production in the second half of this year,” he said, adding that there are no negative coronavirus scenarios.

Yet it is still unclear what Biden’s energy policy could mean for the US shale industry.

In December, US Secretary of Energy Dan Brouillette warned US shale producers should be concerned about a “very aggressive” climate policy that will take place with the incoming Biden administration.

Biden may not ban fracking, the fossil fuel extraction process that produces shale gas, but he would try to significantly suppress it with regulations, many analysts say.

– CNBC’s Sam Meredith, Natasha Turak and Patti Domm contributed to this report.