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While global crude oil prices recovered to around $51 a barrel as the year draws to an end, 2020 has been anything but kind for the black stuff. Demand for crude plummeted as measures to combat the COVID-19 pandemic bit hard into travel and commuting. A price war between Russia and Saudi Arabia did little to help. All this combined to see U.S. crude in negative territory in April and Brent’s prices falling below the $20 mark.
Vaccines notwithstanding, the uptick in demand for crude doesn’t look particularly rosy. Most European countries have new measures and lockdowns in place. Industries key to the oil markets such as air travel don’t look like picking up anytime soon, and commuter travel is still stifled.
According to figures published by the Energy Information Administration, world oil production fell from 100.61 million barrels per day in 2019 to 94.25 million barrels per day in 2020. Production in 2021 is expected to hover around 97.42 million barrels per day, up from 2020 but still far short of the 2019 figures.
Oil refiners need to service their debt, and the only way to do that is to keep producing, even if it costs them more to produce the oil than the price they can sell it for.
The next few months are likely to see further volatility as the puzzle of falling demand unravels against a potential spike in production. Major producers like Saudi Arabia and Russia are primarily oil-based economies, with oil and gas providing accounting for almost 30% of Russia’s GDP and over 60% of its exports. Any production cuts bite deeply into the Russian economy, with the country’s exporters unlikely to agree to any further reductions. Better to have something coming in than nothing after all!
Despite the strong close to the year, with levels close to the 2015-2017 averages, the year ahead looks grim for crude oil and oil producers.
It’s been a pretty perfect storm for crude oil. COVID-19 measures combined with increased awareness of global warming have combined to curb any enthusiasm for oil production, with many refiners taking capacity offline to the tune of 1.5 million barrels per day.
Global consumption of crude and liquid fuels fell from 101.2 million barrels per day in 2019 to 92.4 million barrels per day in 2020, a 9% drop year-on-year. That might not look like for lot as a daily figure, but that amounts to over 3 billion barrels for the year, and that’s a lot of dollars!
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