NEW YORK (Reuters) – This year has been like no other for oil prices.
Even though global prices end the year at about $ 51 a barrel, close to the 2015-2017 average, it masks a year of volatility. In April, American oil plunged deep into 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 recovering from this decline, as the pandemic destroyed fuel demand around the world. While the short-term decline in the future of US oil below negative – $ 40 a barrel is unlikely to repeat in 2021, new blockages and a gradual launch of vaccines to treat the virus will curb demand next year and perhaps even beyond.
“We really haven’t seen anything like it – not in the financial crisis, not after 9/11,” said Peter McNally, a global leader in the materials and energy industry at Third Bridge. “The impact on demand has been remarkable and rapid.”
GRAPH: World oil consumption to fall in 2020 –
GRAPH: World oil demand is sinking here
Demand for fossil fuels in the coming years could remain lower even after the pandemic, as countries try to limit emissions to slow climate change. Large oil companies, such as BP Plc and Total SE, have published forecasts that include scenarios in which global oil demand could have peaked in 2019.
World oil and liquid fuel production fell in 2020 to 94.25 million barrels per day (bpd), from 100.61 million bpd in 2019, and production is expected to recover to only 97.42 million bpd per year future, said the Energy Information Administration.
“Every cycle feels the worst when you go through it, but it was a dose,” said John Roby, executive director of oil producer Teal Natural Resources LLC in Dallas, Texas.
GRAPH: World oil production declines –
SLACKENS REQUEST
As coronavirus cases spread, governments imposed blockades, keeping residents on and off the roads. World liquid and crude fuel consumption fell to 92.4 million bpd for that year, down 9% from 101.2 million bpd in 2019, the EIA said.
The changing landscape poses a threat to refineries. About 1.5 million bpd of processing capacity has been taken off the market, Morgan Stanley said.
According to GlobalData, global crude oil distillation capacity will continue to grow, but declining demand and weak margins for gasoline, diesel and other fuels have led refineries in Asia and North America to shut down or reduce production, including more along the US Gulf Coast.
Closures in more developed economies “increase refineries’ exposure to the highly competitive product export market,” BP said in a statement released in September. (…)
GRAPH: Gasoline margins are slow in 2020 –
GRAPHIC: Refining margins weigh on the market here
VOLATILITY INCREASES
The next few months are likely to be volatile, as investors weigh on warm demand for another potential increase in producers’ oil supplies, including the Organization of the Petroleum Exporting Countries (OPEC) and allies.
“Markets have been tumultuous and disordered over the past 12 months, with long-term implications as we begin to form new contours of normalcy toward a post-virus balance,” said Mitsubishi UFJ Financial Group analysts.
The volatility index of the ETF for Cboe crude oil rose to 517.19 in April. Since then, the index has dropped to about 40, but this is still about 60% higher than a year ago, according to Eikon Refinitive data.
GRAPH: Oil volatility rises –
Reporting by Stephanie Kelly and Devika Krishna Kumar in New York; Edited by David Gaffen and Matthew Lewis