2020 is a special year in history. In this past year, the world has experienced the unprecedented impact of the new coronavirus epidemic, and the global economy has suffered The economy has been hit hard; European, American, Asian and other economies have launched economic aid plans. This year is also a year of difficult economic recovery. The performance of international crude oil has been ups and downs, and we have also witnessed many historical moments such as the breakdown of OPEC+ negotiations, excessive production cuts, “negative oil prices”, and the farcical US election. Judging from the price comparison charts of the past three years in 2018, 2019 and 2020, the crude oil market in 2020 is the most difficult year.
Let’s first review the crude oil market trends in 2020
Taken together, business community data shows that as of December 24, 2020, WTI crude oil fell from US$61.68/barrel at the beginning of the year to US$48.23/barrel, a decrease of 21.81%, and Brent crude oil fell from US$68.44 at the beginning of the year. / barrel fell to 51.34 US dollars / barrel, a decrease of 24.99%.
Since the outbreak at the beginning of the year Since the epidemic, oil prices have quickly entered a downward channel. Initially, the market was worried about China’s declining fuel demand and economic suppression. From January 20 to January 31, Brent crude oil fell from US$65.20 per barrel to US$56.62. /barrel, a decrease of US$8.58/barrel (13.2%). WTI crude oil fell from US$58.38/barrel to US$51.56/barrel, a decrease of US$6.82/barrel (11.7%). As the epidemic in China was brought under control and OPEC+ reduced production, oil prices experienced a short rebound. But the good times did not last long. In March, the OPEC+ production reduction agreement negotiations broke down. Russia and Saudi Arabia engaged in a price war. Saudi Arabia issued a statement to increase production on a large scale to gain more market share. The two sides struggled to return to the negotiating table, and oil prices plummeted. WTI fell from $47 at the beginning of March to $20 at the end of March, a drop of more than 36%.
However, as the epidemic spreads rapidly around the world, fuel demand has plummeted, and oil prices are still on a downward path. OPEC+ then reached an agreement to reduce production on a large scale. OPEC+ is preparing to jointly reduce production by 9.7 million barrels per day in May and June. However, the market did not respond positively at first. On the contrary, due to the sudden drop in demand, the increase in U.S. shale oil production, and the bottleneck of U.S. oil storage capacity, especially the Cushing area, which is close to full capacity, it triggered one of the most high-profile events this year – the WTI delivery month contract fell to -37 The dollar’s “negative oil price” event.
After May, OPEC+ entered a period of super-scale production reduction. As the epidemic situation improved and demand recovered, international oil prices began to rise. During the period of OPEC+’s super-scale production reduction from May to June, WTI rebounded by nearly 100%, from $19 in early May to $38 in late June.
In the second half of the year, although the epidemic was still fermenting, the economy continued to recover and oil prices entered a relatively stable stage. In July, OPEC+ extended its ultra-large production cuts (9.7 million barrels) for one month. It dropped to 7.7 million barrels per day starting in August. From July to October, oil prices have always gone up and down, with mainly range-bound fluctuations. Even the impact of the hurricanes in the Gulf of Mexico in August and September, as well as the endless farce in the US election, did not bring severe shocks to oil prices such as the breakdown of OPEC+ negotiations and negative WTI oil prices.
After November, there was a major breakthrough in the new crown vaccine, and oil prices opened an upward channel. The OPEC+ agreement to reduce production in early December also released a positive signal to the oil market, that is, OPEC+ in January 2021 It will “increase” production by 500,000 barrels per day. Since the increase in production is relatively small, it will also give reassurance to the uncertain crude oil market in the future. On December 10, Brent crude oil once rose above the US$50 mark, once hitting a nearly eight-month high. As of December 28, oil prices were still hovering around $50.
Outlook for 2021
The demand for vaccines and epidemic games continues to recover
2020 The epidemic has always existed in 2021. At present, the world economy may still be shrouded in the shadow of the epidemic in 2021. Although the vaccine has made a major breakthrough and entered the vaccination process, there are still many variables in the current epidemic. For example, the currently infected population is still It is only increasing. Many countries in Europe and the United States are still implementing restrictive measures, and virus strain variants have also brought new challenges to vaccines. The most important factor in oil prices around 2021 is still demand. Recently, OPEC once again lowered its oil demand forecast for 2021. Due to the continued impact of the new crown epidemic, global oil demand will rebound more slowly in 2021 than previously expected. Its most recent monthly report shows that demand next year will increase by 5.9 million. barrels/day to 95.89 million barrels/day. The growth forecast is 350,000 barrels per day lower than expected a month ago. The recovery of demand has a long way to go.
China’s demand for diminishing marginal benefits
As for the growth of China’s crude oil demand may slow down, since 2020, China’s crude oil demand has also been affected by the epidemic After severe damage, with proper prevention and control, crude oil consumption has basically returned to pre-epidemic levels after April. As oil prices continue to be low, China’s crude oil imports have only increased. Some institutions predict that China’s crude oil imports in 2020 are expected to exceed 550 million.(11.01 million barrels per day) or even more, an 8.3% increase from the already record 10.16 million barrels per day of crude oil imports in 2019. However, the growth in crude oil imports has also caused a significant increase in domestic crude oil inventories, which has been accompanied by a decline in refinery efficiency and a continued decline in operating rates. Under the influence of the epidemic, domestic refined oil consumption has performed poorly in 2020. Data shows: In the first 10 years of 2020 The monthly cumulative apparent consumption of refined oil products (total of gasoline, diesel, and coal) was 240 million tons, a year-on-year decrease of 7.2%. It is expected that in 2021, China’s crude oil inventories may continue to grow and demand will continue to recover, but the growth rate may slow down.
On the supply side
There are also certain risks and variables in supply in 2021. The risks lie in geopolitical risks in Middle East oil-producing countries and U.S. shale The risks of increased oil and Libyan production, as well as the risks of U.S. policy toward Iran, etc. Variables exist in the implementation of the loosely organized production reduction agreement of OPEC+, and the issue of whether the production reduction policy will be continued in the later period.
There is a high probability that OPEC+ will implement the production reduction agreement stably
Overall, there is a high probability that OPEC+ may still implement a policy of gradually shrinking the scale of production reductions , and OPEC+ should adjust policies in a timely manner based on the recovery of global fuel demand. Starting from January 2021, OPEC+ will reduce the scale of production reduction from 7.7 million barrels per day to 7.2 million barrels per day, an increase of 500,000 barrels per day. In addition, a ministerial meeting will be held every month to adjust the scale of production reduction in a timely manner. More than 500,000 barrels per day. Judging from the current policies, they should be relatively mild and have a positive impact on the market. However, we do not rule out the negative effects of negative production reductions by some members.
U.S. shale oil may continue to grow, increasing supply risks
U.S. shale oil, as oil prices resume their rise in the second half of 2020 With the trend, the willingness to invest in shale oil has increased, and the number of active shale oil rigs continues to rise. Baker Hughes data shows that as of the week of December 18, the number of active oil rigs in the United States increased to 264, which has been rising for five consecutive weeks, and The scale of well completions has also increased, and the market is generally still optimistic that the economy will continue to recover in 2021, fuel demand will improve, and oil prices may continue to rise, which may stimulate more companies’ willingness to complete inventory wells and increase their willingness to increase active drilling rigs. As a result, U.S. crude oil production may increase, which will have a certain impact on the market. However, judging from the governing policies of Biden’s Democratic Party, it may pay more attention to the development of clean energy and restrict polluting energy sources in terms of environmental protection. Since shale oil companies were hit hard by the epidemic before, Trump did not impose strict policies during his administration. Complying with emission standards, if new emission standards are enacted next year, it will increase the costs of shale oil companies and suppress some demand. But judging from the current economic situation in the United States, the new standards will not be implemented at least in the first half of the year. But in the long term, investment in shale oil may be limited by Democratic policies.
Geopolitical risks exist for a long time
In addition, geopolitical risks in the Middle East still exist. Attacks on oil fields in the Middle East have occurred from time to time in the past two years, especially Nowadays, drone equipment bomb attacks are low-cost and easy to control, but they also bring greater risks. But this can only be a short-term impact. Regarding the US nuclear weapons policy towards Iran, it is not very clear at present. Whether the Iranian nuclear crisis can be resolved will not be solved in a day. It may take a long way. In the short and medium term, US sanctions on Iran will not be lifted. Iran’s supply Risks are basically controllable in the short to medium term. But in the long term, Iran, including Venezuela, is still the biggest risk point for supply. If there is a change in U.S. policy, the increase in market supply pressure will be very obvious.
Taken together, the economy will continue to recover in 2021, the global monetary easing environment will not be broken, and the introduction of vaccines will further dilute the negative impact of the epidemic. In addition, OPEC+’s production reduction policy should still have a positive effect. U.S. shale oil is expected to grow again. Saudi Arabia, Russia and the United States are still a triangle of mutual competition on the supply side. As demand recovers, the global oil market continues to destock. There is a high probability that oil prices will continue to rise, but demand uncertainty and supply risks may limit the extent of the rise.
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