Oil prices might have finished 2020 on the up, but for the year as a whole it was a losing year – down more than 20% as the coronavirus depressed economic activity – especially aviation and automotive activities.
The full year performance, weak as it was, disguised a different reality – Brent and West Texas Intermediate prices more than doubled from April’s record lows as producers cut output to match weaker demand.
News of the imminent arrival of COVID-19 vaccines bolstered prices in the fourth quarter, helping futures prices recover to the highest in about 10 months. WTI jumped almost 31% in the final quarter, while Brent prices were up almost 30%.
On the last trading day of 2020, Brent rose 17 cents to settle at $US51.80 a barrel and West Texas Intermediate rose 12 cents to settle at $US48.52 a barrel. Brent fell 21.5% for the year, with WTI falling 20.5%.
WTI ended 2019 around $US61.06 and Brent finished at $US66 a barrel.
Prices for 2020 bottomed in April as fuel demand collapsed due to the COVID-19 pandemic and after a price war between oil giants Saudi Arabia and Russia.
WTI slumped to a record low negative-$US40.32 per barrel, while Brent fell to $US15.98 barrel, the lowest since 1999, according to Reuters data.
The maths of world supply and demand in 2020 explain the slide as producers large and small cut production, investment, staff numbers – some went broke, especially in the US shale oil and gas sectors.
The next month to six weeks will see a host of updates and results for 2020 (the 4th quarter in particular) confirming massive losses (totalling tens of billions of dollars) and more write downs, such as the $US20 billion coming from Exxon Mobil.
World oil and liquid fuels production fell 5% last year 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 in 2021, the Energy Information Administration said last week.
As coronavirus infections (and deaths) grew, governments imposed lockdowns, keeping residents at home, off the roads and not flying (especially internationally). That saw global consumption of crude and liquid fuels fall to 92.4 million bpd for 2020, a 9% drop from 101.2 million bpd in 2019, EIA said.
US petrol futures fell 17% for the year, while heating oil futures dropped 27%. Jet fuel demand was down by more 30% at the end of 2020 from the end of 2019.
And the demand outlook for fuel still remains uncertain looking into 2021.
The final week of December saw the Energy Information Administration report that US crude inventories fell by 6.1 million barrels to 493.5 million barrels – more than 10% higher than the end of 2019 and another sign of the weakness of demand.
That’s despite a fall of around 1.9 million barrels a day in output to 11 million. On a four week average that was down 14% from the closing weeks of 2019.
Oil rig use thought ended 2020 on an uptrend after the bottom in August when there were just 176 rigs looking for oil in the US.
The number of active oil rigs in the US rose by 3 in the final week or 2020 to 267, still down 403 from the 670 at the end of 2019. The number of gas rigs was steady at 83, down 42 on a year earlier.
At some stage in the first half of 2021 that 45% jump in active oil rig numbers will see uS oil production start rising after the fall in through the last 9 months of 2020.
That will pressure WTI prices as will rising output from still under pressure OPEC members and Russia. A meeting on January 4 was due to consider a further relaxation of the OPEC plus groups’ output cap.
