NEW YORK (Reuters) – This year was like no other for oil prices.
Even with global prices ending the year at around $ 51 a barrel, close to the 2015-2017 average, it masks a year of volatility. In April, US crude oil plunged deep into negative territory and Brent fell below $ 20 a barrel, following the COVID-19 pandemic and a price war between oil giants Saudi Arabia and Russia.
The remainder of 2020 was spent recovering from that decline when the pandemic destroyed fuel demand around the world. While the short-lived drop in US oil futures below $ 40 a barrel is unlikely to repeat in 2021, new lockdowns and a staged roll-out of vaccines to treat the virus will limit demand next year and perhaps beyond.
“We really haven’t seen anything like this – not in the financial crisis, not after 9/11,” said Peter McNally, head of the global industry, materials and energy sector at research firm Third Bridge. “The impact on demand was remarkable and fast.”
GRAPH: Global oil consumption will drop in 2020 –
GRAPH: Global demand for oil is falling here
Fossil fuel demand could remain softer in the coming years, even after the pandemic, as countries try to limit emissions to slow climate change. Major oil companies, such as BP Plc and Total SE, released projections with scenarios where global oil demand could peak in 2019.
World production of oil and liquid fuels fell to 94.25 million barrels per day (bpd) in 2020 from 100.61 million barrels per day in 2019, and production is only expected to recover to 97.42 million barrels per day next year , said the Energy Information Administration.
“Every cycle feels like the worst when you go through it, but this one has been a doozy,” said John Roby, CEO of Dallas, Texas-based oil producer Teal Natural Resources LLC.
GRAPH: Global oil production is declining –
ASK SLACKENS
As coronavirus cases spread, governments imposed lockdowns, keeping residents in and out of the roads. Global consumption of crude and liquid fuels fell to 92.4 million barrels per day for the year, a 9% decrease from 101.2 million barrels per day in 2019, according to EIA.
The changing landscape is a threat to refineries. About 1.5 million barrels per day of processing capacity has been withdrawn from the market, Morgan Stanley said.
According to GlobalData, global crude oil distillation capacity is expected to continue to increase, but declining demand and weak margins for gasoline, diesel and other fuels have prompted refineries in Asia and North America to shut down or curtail production, including various facilities along the US Gulf Coast.
Standstills in more developed economies “increase refineries’ exposure to the highly competitive product export market,” BP said in its outlook, published in September. The fact is, you don’t have to worry.
CHART: Gasoline margins remain slow in 2020 –
GRAPH: Refining margins weigh in on the market here
CLIMBING FLIGHT
The coming months are likely to be volatile as investors weigh lukewarm demand against another potential spike in oil supplies from producers including the Organization of Petroleum Exporting Countries (OPEC) and allies.
“The markets have been tumultuous and disorderly for the past 12 months, with long-lasting consequences as we begin to form new contours from normalcy to post-virus equilibrium,” said Mitsubishi UFJ Financial Group analysts.
The Cboe Crude Oil ETF Volatility Index rose to a record high of 517.19 in April. The index has since fallen to about 40, but that’s still about 60% higher than a year ago this time, according to data from Refinitiv Eikon.
GRAPH: Oil volatility increases –
Reporting by Stephanie Kelly and Devika Krishna Kumar in New York; Editing by David Gaffen and Matthew Lewis