The world’s largest independent commodity traders see oil prices rising further this year as demand continues to grow and supply remains constrained.
Yet as top executives from Vitol Group, Trafigura Group and Glencore agreed on the direction of the crude market, they also differed over the size and duration of the rally.
Brent crude, which has already reached a two-year high of $73 a barrel, could rise as much as $5 in the coming months, according to top oil trader Vitol. Yet the second-biggest player, Trafigura, predicted a new commodity “super-cycle” that could take oil to $100 a barrel and see a further a surge in metals prices.
Their difference of opinion goes to the heart of the debate about the state of the global economy. Where some observers see a new era of high inflation due to surging consumption of scarce raw materials, others see temporary imbalances in supply and demand that reflect the shock of the Covid-19 pandemic and the subsequent rebound.
“It is not a super-cycle,” Vitol chief executive Russell Hardy said at the FT Commodities Global Summit on Tuesday. “The energy transition tells us demand will peak and drop.”
A far more bullish assessment came from Trafigura chief executive Jeremy Weir, who predicted many years of high prices for a range of commodities, including a chance of $100-a-barrel crude due to lack of supply.
“This is not a one or two-year phenomenon,” Mr Weir said at the same event. “This is a decade or longer.”
Global commodity markets have just gone through the most turbulent year in their history due to the coronavirus. While the successful rollout of vaccines is allowing economic activity to return close to normal in many developed countries, prices are unlikely to be heading for a period of tranquility, the traders said.
An uneven recovery in fuel consumption, a lack of investment in new oil fields and the disruption caused by the transition to low-carbon energy are likely to spur greater crude-price swings, said Alex Sanna, head of oil and gas marketing at Glencore.
“I believe in spikes in demand and regulatory changes, and that is going to create a lot of volatility,” Mr Sanna said.
Vitol’s Mr Hardy predicted that oil consumption will continue to rise for years to come, reaching 105 million to 110 million barrels a day by 2030. Under-investment caused by last year’s price slump means “there is going to be a gap between 2025 and 2035 in terms of supply and demand”.
Even so, crude would only reach $100 a barrel if the Organisation of Petroleum Exporting Countries and its allies choose to force it that high, Mr Hardy said.
That’s an unlikely outcome, said Marco Dunand, the co-founder and chief executive of Mercuria Energy Group. Oil prices won’t run much higher because Opec+, which has a firm grip on the market because of its deep production cuts, doesn’t want crude above $75 a barrel, he said.
Torbjorn Tornqvist, the co-founder and head of smaller trader Gunvor Group, expects oil prices to remain high in the near to medium term and sees the boom in metals continuing. His company is considering getting back into metals trading after abandoning it five years ago.
Trafigura’s Mr Weir sees high demand for metals due to the shift to electric vehicles and construction of clean-energy infrastructure, such as power cables and wind turbines.
“If you want to electrify we are going to need more copper,” Mr Weir said. “Higher prices are the only solution” to the current supply constraints, he said.