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NEW YORK: This year was like no other for oil prices.
Even when world prices end the year at around $ 51 a barrel, close to the 2015-2017 average, it masks a year of volatility. In April, US crude 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 rebounding from that drop when the pandemic destroyed demand for fuel around the world. While the short-lived drop in US oil futures below negative $ 40 a barrel is not likely to repeat itself in 2021, new lockdowns and a gradual rollout of vaccines to treat the virus will limit the demand next year, and perhaps beyond.
“We haven’t really seen anything like this, not in the financial crisis, not after 9/11,” said Peter McNally, global industry, materials and energy leader at research firm Third Bridge. “The impact on demand was remarkable and fast.”
GRAPH: Global Oil Consumption Plunges in 2020 – https://fingfx.thomsonreuters.com/gfx/ce/bdwpkqqnlpm/Pastedper cent20imageper cent201608829840018.png
GRAPH: Global Oil Demand Plunges https://graphics.reuters.com/GLOBAL-OIL/YEAREND/gjnpwkbojpw
Demand for fossil fuels in the coming years could remain lower even after the pandemic as countries seek to limit emissions to slow climate change. Major oil companies, such as BP Plc and Total SE, released forecasts that include scenarios where global oil demand may have peaked in 2019.
Global 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 just 97.42 million bpd on next year, the Energy Information Administration said.
“Every cycle feels worse when you go through it, but this has been a disaster,” said John Roby, CEO of Dallas, Texas-based oil producer Teal Natural Resources LLC.
GRAPH: World Oil Production Falls – https://fingfx.thomsonreuters.com/gfx/ce/xklvyjjompg/Pastedper cent20imageper cent201608829637412.png
THE SLACKENS DEMAND
As coronavirus cases spread, governments imposed closures, keeping residents on and off the roads. Global consumption of liquid and crude fuels fell to 92.4 million bpd during the year, a 9% drop 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 About 1.5 million bpd of processing capacity was withdrawn from the market, Morgan Stanley said.
Global crude distillation capacity is expected to continue to grow, according to GlobalData, but falling demand and weak margins for gasoline, diesel and other fuels have prompted refineries in Asia and North America to shut down or reduce production. , including several facilities along the US Gulf Coast.
The closures in more developed economies “increase the exposure of refineries to the highly competitive export market for products,” BP said in its outlook, published in September.
GRAPH: Gasoline Margins Will Decline in 2020 – https://graphics.reuters.com/GLOBAL-OIL/YEAREND/azgpoyzejpd/chart.png
GRAPH: Refining Margins Influence the Market https://graphics.reuters.com/GLOBAL-OIL/YEAREND/jznpnqnokvl/index.html
RISES BY VOLATILITY
The next few months are likely to be volatile as investors weigh tepid demand against another possible increase in oil supplies from producers, including the Organization of the Petroleum Exporting Countries (OPEC) and its allies.
“Markets have been tumultuous and disorderly for the last 12 months with long-lasting implications as we begin to form new contours of normalcy towards a post-virus equilibrium,” said analysts at Mitsubishi UFJ Financial Group.
The Cboe crude oil ETF volatility index rose to a record 517.19 in April. Since then the index has fallen to around 40, but it is still 60% higher than it was at this time a year ago, data from Refinitiv Eikon shows.
GRAPH: Oil Volatility Increases – https://fingfx.thomsonreuters.com/gfx/ce/qzjvqddgdpx/Pastedper cent20imageper cent201608829989129.png
(Reporting by Stephanie Kelly and Devika Krishna Kumar in New York; Edited by David Gaffen and Matthew Lewis)
