A historic collapse in oil prices, with concerns for 2021

NEW YORK (Reuters) – This year has been unlike any other for oil prices.

Even though global prices end the year at around $ 51 a barrel, near the 2015-17 average, this masks a year of volatility. In April, U.S. crude plunged deep into negative territory and Brent fell below $ 20 a barrel, criticized by the COVID-19 pandemic and a price war between oil giants Saudi Arabia and Russia.

The remainder of 2020 was spent recovering from that drop as the pandemic destroyed global fuel demand. While the short-lived decline in U.S. oil futures below less than $ 40 a barrel is unlikely to be repeated in 2021, further lockdowns and a gradual rollout of vaccines to treat the virus will limit demand. next year, and possibly beyond.

“We really haven’t seen anything like it – neither during the financial crisis nor after 9/11,” said Peter McNally, global industry, materials and energy leader at research firm Third Bridge. “The impact on demand has been remarkable and rapid.”

(GRAPHIC: Global oil demand is declining here)

(GRAPHIC: World oil production is declining)

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, have released forecasts that include scenarios where global oil demand may have peaked in 2019.

Global oil and liquid fuels production fell in 2020 to 94.25 million barrels per day (bpd) from 100.61 million bpd in 2019, and production is only expected to recover to 97.42 million bpd. bpj next year, the Energy Information Administration reported.

“Every cycle seems like the worst when you go through it, but this one has been a doozy,” said John Roby, general manager of Dallas, Texas-based oil producer Teal Natural Resources LLC.

REQUEST SLACKENS

As coronavirus cases spread, governments have imposed lockdowns, keeping residents in and off roads. Global consumption of crude and liquid fuels fell to 92.4 million b / d for the year, down 9% from 101.2 million b / d in 2019, the EIA said.

The changing landscape poses a threat to refiners. About 1.5 million bpd of processing capacity has been taken off 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 America North to shut down or reduce production, including several facilities along the US Gulf of Mexico coast.

Closures in more developed economies “increase the exposure of refineries to the highly competitive product export market,” BP said in its outlook released in September.

GRAPHIC: Gasoline margins are sluggish in 2020 –

GRAPHIC: refining margins weigh on the market here

VOLATILITY INCREASES

The next few months are likely to be volatile, with investors weighing lukewarm demand against another potential spike in oil supply from producers, including the Organization of the Petroleum Exporting Countries (OPEC) and its allies.

“Markets have been tumultuous and messy over the past 12 months with lasting implications as we begin to shape new contours of normalcy towards a post-virus equilibrium,” said analysts at Mitsubishi UFJ Financial Group.

The volatility index for Cboe crude oil ETFs hit a record high of 517.19 in April. The index has since fallen to around 40, but it’s still around 60% higher than a year ago, according to data from Refinitiv Eikon.

(GRAPHIC: Oil volatility is climbing here)