INSUBCONTINENT EXCLUSIVE:
Oil's journey from worthless in the pandemic to $100 a barrelIn July 2020, just a few months after the COVID-19 pandemic started to spiral
out of control, Shell CEO Ben van Beurden declared world oil demand may have passed its peak - all but condemning his company's core
business to eventual obscurity."Demand will take a long time to recover if it recovers at all," he told reporters after the Anglo-Dutch
energy company reported a sharp drop in second-quarter profit.Van Beurden wasn't alone in his gloomy view
Like much else during the pandemic, what was happening in fuel markets was unprecedented
Demand had fallen so sharply as people stopped travelling, the oil industry simply couldn't cut production fast enough to match it.Worse,
the fall in demand came as Russia and Saudi Arabia - the two most powerful members of the OPEC group - were locked in a supply war that
flooded markets.There was so much oil there was nowhere to put it, and in mid-April 2020 the price of a barrel of West Texas crude went
below $0 as sellers had to pay get rid of it.But less than two years later, the predictions of Van Beurden and others about oil's demise
look premature.Benchmark Brent crude futures hit $100 a barrel on Wednesday for the first time since 2014 as Russian President Vladimir
Putin ordered military operations in Ukraine
The potential for conflict to interrupt supply added more pace to a rally underpinned by a recovery in demand that has been faster than oil
producers can match.Worldwide oil consumption last year outstripped supply by about 2.1 million bpd, according to the International Energy
Agency, and will surpass 2019-levels this year.Oil suppliers had to drain inventories to meet demand, and consumer nations are pleading for
companies like Shell to drill more.Boom And BustSuch a cycle has replayed often throughout the history of oil."If you go back to the days of
whale oil, oil has been a story of boom and bust," said Phil Flynn, senior analyst at Price Futures Group in Chicago
"It's a peak-to-valley cycle and usually when you hit the valley, get ready because the peak isn't that far ahead."The trough in oil
prices in early 2020 triggered political moves that might have otherwise been unimaginable.Donald Trump, the United States president at the
time, became so concerned about the potential collapse of domestic oil drillers that he delivered Saudi Crown Prince Mohammed bin Salman an
ultimatum in an April phone call: cut production or risk the withdrawal of United States troops from the kingdom.Investor and governmental
pressure for oil producers to cut emissions was also on the rise.In mid-May 2021, the International Energy Agency said there should be no
new funding of major oil-and-gas projects if world governments hoped to prevent the worst effects of global warming.It was an about-face for
an organisation long seen as a major fossil fuel cheerleader.Policy PowerThe politics of the transition have made European oil majors
reluctant to invest in increasing production, so their typical reaction to higher prices - to pump more - has been slower than it might
otherwise have been.Several OPEC members simply didn't have the cash to maintain oilfields during the pandemic as their economies crashed,
and now cannot increase output until costly and time-consuming work is completed.Those with spare capacity such as Saudi Arabia and the
United Arab Emirates are reluctant to overstep their OPEC supply share agreements.Even the United States shale industry - the world's
most critical swing producer from 2009 through 2014 - has been slow to restore output amid pressure from investors to increase their
financial returns rather than spending.All of this sowed the seeds for the current boom.The Biden Administration, which wants to fight
climate change but also protect consumers from high pump prices, is now encouraging drillers to boost activity and calling for OPEC to
So is the IEA.That could be a struggle, according to Scott Sheffield, CEO of United States shale producer Pioneer Natural Resources
He told investors last week that OPEC does not have enough spare capacity to handle rising world demand, and that his own company would
limit production growth to between zero and 5%.RBC Capital's Mike Tran said it will be high prices, not new supply, that ultimately
"It simply does not get more bullish than that," he wrote in a note this month.But others think the supply will come eventually
After all, a boom always comes before a bust."We think $100 crude brings in all the wrong things - too much supply, too fast," said Bob
Phillips, CEO of Crestwood Equity, a midstream operator based in Houston
"We don't think it's sustainable."
