Oil demand is recovering, but industry remains cautious, says Baker Hughes chief

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Demand for oil is continuing to rise following a dramatic plunge last year due to COVID-19, but the industry is taking a cautious approach to the recovery, a move which is likely to keep prices high, the chief executive officer of Baker Hughes told Al Arabiya.

The oil market was severely disrupted in 2020 as the coronavirus upended normal supply lines while demand for petroleum products tumbled as governments around the world mandated lockdowns to combat the spreading pandemic. Oil prices fell in line with this change, even turning negative at one point, but have now recovered as the virus-caused economic hit has eased.

“As we look at 2021, we are cautiously optimistic that there is a recovery taking place. As you look at the [COVID-19] vaccine rollouts that are happening globally, we do see demands starting to become more robust and with that as you said there has been a price increase from a Brent and WTI spot perspective,” Lorenzo Simonelli, chairman and CEO of Baker Hughes, an oil field services company, told Al Arabiya’s Naser El Tibi.

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In response to the pandemic, oil firms slashed capital expenditure plans as firms tightened belts to weather the COVID-19 storm. Experts had previously warned that this could lead to a heightened oil price in the future, as supply tightens while demand increases – a sentiment Simonelli agreed with.

“Going in to 2022 we should see free cash flows and also a remaining high oil price which is really driven from the demand returning and customers remain also prudent and also disciplined in the capital spending which says that prices remain high,” he said.

While all oil producers suffered due to the demand plunge caused by the pandemic, US shale oil producers, already heavily leveraged and on thin margins, were pushed to the brink, with some failing to bankruptcy due to oil’s price plunge.

In April 2020, some were already pronouncing that US shale would fail to recover, with experts more recently suggesting that growth would be exceptionally slow for the industry in the future, despite a history of rapid, multi-million barrels per day growth year-on-year.

“We don’t think North America is going to follow the same cyclical uptrend that is seen other times around,” Simonelli commented.

“We also think that from an investor perspective they are asking for operators to be more capital disciplined, so we are encouraged to see that there is an improvement in the rig count, but we don’t anticipate that the North America cycle will be that of the past. For the next two to three years that capital discipline will be in place and there will be a gradual improvement, but it won’t be a large swing as we have seen previously,” he added.

Simonelli’s outlook for the Middle East was significantly rosier however, noting that the Baker Hughes sees a potential for a recovery in the second half of 2021 and continuing into 2022 for the region.

“As you look at the low-cost basins and the competitiveness of the region, we think it is well suited to taking advantage of that demand globally recovers and the Middle East being able to increase its production going into the second half,” he said.

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