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Moneycontrol Pro Panorama | Why the oil market could heat up further

In today’s edition of Moneycontrol Pro Panorama: Oil supply catch-up, metal prices on fire, ghost of taper tantrum, India Inc’s market maths, Adani’s airport IPO bet, why Facebook is pricey, Weekly Tactical, Bata India stepping up and much more

June 11, 2021 / 02:56 PM IST

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Consumers worried about Rs 100 per litre petrol prices better watch out. The Organization of the Petroleum Exporting Countries (OPEC) is projecting a notable rise in demand for crude oil in the second half of 2021. As major economies reopen, global demand is projected to rise about 5 percent to 99 million barrels of crude oil per day from the first half of the current year.

“Improvements in pandemic containment efforts and seasonal summer demand will allow for positive expectations for 2H21,” OPEC said in its monthly oil report.

Inventories and the existing production can meet upcoming demand. But supplies can remain tight. As more countries vaccinate their citizens and reopen their economies, demand will rise further. (Do check out herd immunity tracker to see how India is doing on vaccination.)

Can crude oil supplies keep pace? There are doubts.

Close

World crude oil inventories are trending lower. As oil demand in developed countries recovers, OPEC expects inventories to fall below the 5-year average in the second half of 2021, reports The Wall Street Journal.

The OPEC and its allies plan to increase production. Still, a sustained recovery in the global economy can keep crude oil prices elevated.

What’s more, major global oil and gas producers are under pressure from activist investors to cut carbon emission and reduce their dependence on fossil fuels.

So, despite higher prices, major private firms are holding back their investments in oil and gas. Private firms’ share in overall upstream spending is now at 25 percent, down from nearly 40 percent in the mid-2010s, show calculations by the International Energy Agency (IEA).

“In the case of oil and gas, upstream investment is now half of what it was in 2014, while oil and gas demand – even with the effects of the pandemic – has not changed to anything like the same extent,” IEA said in a report.

The low investments can restrict supplies and stoke prices.

“Uncertainty over the pace of decarbonisation creates the possibility of unintended consequences for prices. If stakeholder pressure has the effect of constraining investment and restricting exploration and demand remains high, the result could be tight markets and rising prices over the medium term,” Ed Crooks, vice chairman- Americas, Wood Mackenzie, an energy consultancy, said in a statement.

Perhaps that explains the calculated bet by Vedanta in Videocon group. Also, investors should watch out for unintended consequences of the shareholder activism and environment norms. For instance, the FT reported yesterday that stricter environment rules in China can potentially reduce supply of metals, fuelling prices. (Free to read for Pro subscribers here).

Do check out these investing insights from our research team:

US inflation spike: A signal for repeat of taper tantrum?

Bata India: Is the footwear major poised for a strong comeback?

Strong order book to aid ION Exchange’s recovery

Weekly Tactical Pick – UTI AMC

Kirloskar Ferro: Second round of capex to drive growth in the long term

What else are we reading today?

Shrinking middle class, falling incomes: Indian companies need to reassess market potential

Airports IPO | Will the newest business from the Adani stable replicate earlier successes?

How did Punjab get to the top in school education?

COVID second wave will widen the divide between large and small realty developers

Mrs. Bectors' subdued sales guidance could pose a risk to its valuation

Lex | Facebook: priced for imperfection (Republished from the FT)

Technical picks : Tech Mahindra, BHEL, DLF and Infosys (These are published every trading day before markets open and can be read on the app)

R Sree Ram

Moneycontrol Pro
R. Sree Ram

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