A historic oil price collapse, with worries headed into 2021
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[December 29, 2020] By
Stephanie Kelly and Devika Krishna Kumar
NEW YORK (Reuters) - This year was like no
other for oil prices.
Even as global prices end the year at about $51 a barrel, near the
average for 2015-2017, it masks a year of volatility. In April, U.S.
crude plunged deep into negative territory and Brent dropped below $20
per barrel, slammed 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 fuel demand around the world. While the short-lived
decline of U.S. oil futures below negative-$40 a barrel is not likely to
be repeated in 2021, new lockdowns and a phased rollout of vaccines to
treat the virus will restrain 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, global sector lead for
industrials, materials and energy at research firm Third Bridge. "The
impact on demand was remarkable and swift."
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GRAPHIC: World oil consumption sinks in 2020 -
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GRAPHIC: World oil demand sinks https://graphics.reuters.com/GLOBAL-OIL/YEAREND/gjnpwkbojpw
Fossil-fuel demand in coming years could remain softer even after the
pandemic as countries seek to limit emissions to slow climate change.
Major oil companies, such as BP Plc and Total SE, published forecasts
that include scenarios where global oil demand may have peaked in 2019.
World oil and liquid fuels production fell in 2020 to 94.25 million
barrels per day (bpd) from 100.61 million bpd in 2019, and output is
expected to recover only to 97.42 million bpd next year, the Energy
Information Administration said.
"Every cycle feels like the worst when you're going through it, but this
one has been a doozy," said John Roby, chief executive of Dallas,
Texas-based oil producer Teal Natural Resources LLC.
GRAPHIC: World oil production falls -
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DEMAND SLACKENS
As coronavirus cases spread, governments imposed lockdowns, keeping
residents indoors and off the roads. Consumption of world crude and
liquid fuels fell to 92.4 million bpd for the year, a 9% drop from 101.2
million bpd in 2019, EIA said.
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![](../images/122920PIX/busine31.jpg)
An oil worker walks
toward a drill rig after placing ground monitoring equipment in the
vicinity of the underground horizontal drill in Loving County,
Texas, U.S., November 22, 2019. REUTERS/Angus Mordant/File Photo
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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.
Worldwide crude distillation capacity is expected to keep rising, according to
GlobalData, but falling demand and weak margins for gasoline, diesel and other
fuels has prompted refineries in Asia and North America to close or curtail
output, including several facilities along the U.S. Gulf Coast.
Shutdowns in more developed economies "increase refineries' exposure to the
highly competitive product export market," BP said in its outlook, released in
September.
GRAPHIC: Gasoline margins sluggish in 2020 - https://graphics.reuters.com/GLOBAL-OIL/YEAREND/azgpoyzejpd/chart.png
GRAPHIC: Refining margins weigh on market https://graphics.reuters.com/GLOBAL-OIL/YEAREND/jznpnqnokvl/index.html
VOLATILITY CLIMBS
The next several months are likely to be volatile as investors weigh tepid
demand against another potential spike in oil supply from producers, including
the Organization of the Petroleum Exporting Countries (OPEC) and allies.
"Markets have been tumultuous and disorderly over the last 12 months with
long-lasting implications, as we begin to form new contours of normality towards
a post-virus equilibrium," Mitsubishi UFJ Financial Group analysts said.
The Cboe Crude Oil ETF Volatility Index surged to a record 517.19 in April. The
index has since dropped to around 40, but that is still about 60% higher than
this time a year ago, Refinitiv Eikon data shows.
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GRAPHIC: Oil volatility climbs -
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(Reporting by Stephanie Kelly and Devika Krishna Kumar in New York; Editing by
David Gaffen and Matthew Lewis)
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