Owners of Santos Ltd (ASX: STO) shares had an exciting 2021. And, according to forecasting by S&P Global Platts analytics, they might be in for a strong 2022 too.
The research house recently released its outlook for energy commodities’ prices, wherein it predicted demand for fossil fuels will increase this year.
Of course, that will likely impact Santos’ profit margins and, therefore, its share price. At the time of writing, the Santos share price is $6.85.
Let’s take a closer look at what might move oil prices this year.
Could this drive the Santos share price this year?
According to S&P Global Platts, oil prices will likely stabilise in 2022 as COVID-19 becomes less disruptive and demand for oil increases.
This is likely good news for those who hold shares in oil producers such as Santos or Woodside Petroleum Limited (ASX: WPL).
Analysts from the research house expect the supply of fossil fuels will increase over 2022, potentially even exceeding demand. It stated:
We project that oil demand will increase by over 4 million [barrels per day (b/d)] in 2022. Even in a case where COVID proves to be more disruptive than expected, oil demand will still increase by almost 3 million b/d at a minimum, as vaccinations continue to build globally, and importantly, in countries with high GDP per capita. Oil demand growth could exceed 6 million b/d if we revert to normal more quickly. The strength in demand will push refinery runs and utilization rates (even including increased refining capacity) close to their historical ranges, improving margins.
Additionally, S&P Global Platts noted, “fears about the impact of new coronavirus variants, like Omicron, on demand will add to volatility but are likely overblown.”
It predicts, as more of the world’s population receive COVID-19 jabs, the likelihood that outbreaks will impact oil demand will lessen.
It also expects oil inventories to recover in the first quarter, leading oil prices to stabilise.
Finally, demand for diesel is expected to stay high. It will likely be driven by lessening bottlenecks in supply chains and more planes launching into the sky.
What else could impact oil prices?
However, supply of oil could be hampered if a US-Iran nuclear deal isn’t implemented and sanctions continue.
S&P Global Platts predicts such a deal will be penned by March, with full sanctions relief by April. That could see Iran boosting global supply by 1.4 million barrels per day by the end of this year.
Though, without a deal oil prices could surge. The research house stated:
[T]he key test will come in the third quarter as summer demand challenges supply resilience – the absence of an Iran deal could leave the market vulnerable to breaking US$100 per barrel if combined with any other disruptive event.
In December, the Australian Department of Industry, Science, Energy and Resources predicted the oil price won’t surpass US$85 per barrel during financial year 2022.
Some might have hoped 2022 would spell the beginning of a new age of decarbonisation, particularly following COP26. However, that likely won’t be the case.
The research body expects carbon emissions from energy combustion will increase 2.5% in 2022, reaching new record levels.
Additionally, certain elections are expected to bring risks for domestic environmental policy agendas. S&P Global Platts noted:
Midterm elections in the US could derail the Biden Administration’s environmental agenda, while Australia’s opposition party is looking to oust the more conservative government by making stronger environmental targets a priority. These elections are reminders that “all politics are local” and the fates of global agreements are often determined by domestic elections, public sentiment, and policy shifts.
Santos share price snapshot
So far, 2022 has been good to the Santos share price.
It has gained 3.63% since the start of the year. Though, it is 5% lower than it was this time last year.