Supercycle on the verge of energy transition

After a sharp decline during the pandemic, oil prices are rising again (Brent crude traded above $ 68 per barrel yesterday), according to experts from the International Monetary Fund (IMF), this is a new super cycle – a period when prices consistently exceed the long-term trend. This supercycle is supported by a persistent supply shortage amid a decline in investment following a fall in prices in 2014. Investments in oil shale have also been declining recently, with demand growing steadily amid recovery in large economies such as China and the United States and market optimism about vaccination spread.

The supercycle, however, may be the last one – governments are increasingly implementing fossil fuel phase-out policies, and automakers are announcing a switch to electric or hybrid engines in the medium term. It is not yet clear whether consumers will actually switch to such vehicles en masse, but rising fuel prices and declining electric vehicles will also contribute to the transition.

Some producers’ forecasts, such as BP and Shell, already indicate that oil demand has peaked at 100 million barrels per day. and will never return to that level. Now this forecast is supported by a sharp reduction in the consumption of petroleum products in transport, including as aviation fuel. The IMF, however, believes that improving living standards (and consumption) in developing countries will be a more important factor, and given the problems with electric refueling in such countries, demand will grow primarily due to traditional market segments (fuel for cars covers half oil market). The International Energy Agency expects consumption to grow to 104.1 million barrels per day by 2026.

Nonetheless, the move to greener transport will lead to an overestimation of oil reserves, especially those that are costly to develop. This will lead to structural changes in economies that depend on the export of raw materials and their neighbors (for example, countries where migrants make transfers). But the demand for other raw materials will sharply grow – for example, cobalt, which is used in batteries, as well as uranium (in the event of an increase in demand for atomic energy), they conclude in the fund.

Tatiana Edovina