NEW YORK (Reuters) – Oil prices were not like this year.
Although world prices end the year at around $ 51 a barrel, almost the average for 2015-2017, it is a year of volatility. In April, US crude oil plunged deep into a negative territory and Brent fell below $ 20 a barrel, hit by the COVID-19 pandemic and a price war between oil giants Saudi Arabia and Russia.
The rest of 2020 was spent on repairing the decline as the pandemic destroyed the demand for fuel around the world. While the short-lived drop in U.S. oil futures below negative $ 40 a barrel is unlikely to be repeated in 2021, new closures and a gradual introduction of vaccines to treat the virus will limit it next year, and perhaps beyond.
“We really have not seen anything like this – not in the financial crisis, not even after 9/11,” said Peter McNally, the leading global industry for industry, materials and energy at research firm Third Bridge. “The impact on demand was remarkable and rapid.”
GRAPH: World oil consumption declines in 2020 –
GRAPH: The world’s demand for oil drops here
Demand for fossil fuels in the coming years may remain softer even after the pandemic, as countries want to limit emissions to slow climate change. Major oil companies, such as BP Plc and Total SE, have published forecasts that include scenarios where global oil demand may have peaked in 2019.
World oil and liquid fuel production fell to 94.25 million barrels per day (bpd) in 2020 from 100.61 million bpd in 2019, and production is expected to recover to just 97.42 million bpd next year, Energy said. information administration said.
“Every cycle feels like the worst when you go through it, but this one was a doozy,” said John Roby, CEO of Dallas, Texas-based oil producer Teal Natural Resources LLC.
GRAPH: World oil production declines –
QUESTION SLACKENS
As coronavirus cases spread, governments imposed locks and kept residents inside and off the roads. Global crude and liquid fuel consumption fell to 92.4 million bpd for the year, a 9% drop from 101.2 million bpd in 2019, EIA said.
The changing landscape poses a threat to refineries. About 1.5 million bpd of processing capacity has been taken from the market, Morgan Stanley said.
According to GlobalData, global crude distillation capacity is expected to continue to rise, but declining demand and weak margins for petrol, diesel and other fuels have led refineries in Asia and North America to shut down or curb production, including several facilities along the U.S. Gulf Coast.
Partitions in more developed economies “increase refineries’ exposure to the highly competitive product export market,” BP said in its forecast, released in September.
GRAPH: Petrol margins are slow in 2020 –
GRAPH: Refinement margins weigh the market here
VARIABILITY
The coming months are likely to be volatile as investors weigh in on the demand for a potential increase in the oil supply of producers, including the Organization of the Petroleum Exporting Countries (OPEC) and allies.
“Markets have been turbulent and disorderly over the past twelve months with long-term implications as we begin to shape new contours of normality toward a post-virus equilibrium,” Mitsubishi UFJ Financial Group analysts said.
The Cboe exchange oil ETF volatility index rose to a record 517.19 in April. The index has since fallen to about 40, but it is still about 60% higher than this time a year ago, Refinitiv Eikon data shows.
GRAPH: Oil volatility climbs –
Reporting by Stephanie Kelly and Devika Krishna Kumar in New York; Edited by David Gaffen and Matthew Lewis