NEW YORK (Reuters) – This year was like no other for oil prices.
Even with global prices closing the year at around $ 51 a barrel, close to the 2015-2017 average, this masks a year of volatility. In April, US oil plunged deeply into negative territory and Brent fell to less than $ 20 a barrel, hit by the pandemic COVID-19 and a price war between oil giants Saudi Arabia and Russia.
The remainder of 2020 was spent on recovering from that decline, as the pandemic destroyed fuel demand worldwide. While the short-term fall in U.S. oil futures below $ 40 a barrel is not expected to repeat in 2021, further blockages and a phased implementation of vaccines to treat the virus will contain demand next year, and perhaps later.
“We really didn’t see anything like it – neither in the financial crisis, nor after 9/11,” said Peter McNally, a global industry, materials and energy leader at research firm Third Bridge. “The impact on demand was notable and fast.”
GRAPHIC: World oil consumption sinks in 2020 –
GRAPHIC: World oil demand sinks here
Demand for fossil fuels in the coming years may remain weak even after the pandemic, as countries seek to limit emissions to slow climate change. Major oil companies like BP Plc and Total SE have published forecasts that include scenarios in which global oil demand may have peaked in 2019.
World oil and liquid fuel production fell in 2020 to 94.25 million barrels per day (bpd) from 100.61 million bpd in 2019, and production is expected to recover only to 97.42 million bpd next year, said the Energy Information Administration.
“Each cycle looks the worst when you’re going through it, but this has been a mess,” said John Roby, chief executive of oil producer Teal Natural Resources LLC, based in Dallas, Texas.
GRAPHIC: World oil production falls –
DEMAND SLACKENS
As coronavirus cases spread, governments imposed blockades, keeping residents indoors and off the road. World consumption of crude and liquid fuel fell to 92.4 million bpd in the year, down 9% from 101.2 million bpd in 2019, the EIA said.
The changing landscape poses a threat to refiners. About 1.5 million bpd of processing capacity has been withdrawn from the market, said Morgan Stanley.
Global oil distillation capacity is expected to continue to increase, according to GlobalData, but falling demand and weak margins for gasoline, diesel and other fuels have led refineries in Asia and North America to close or reduce production, including several facilities along the U.S. Gulf Coast.
Closings in more developed economies “increase refineries’ exposure to the highly competitive product export market,” BP said in its forecast, released in September.
GRAPHIC: Slow gasoline margins in 2020 –
GRAPHIC: Refining margins weigh on the market here
VOLATILITY SCALES
The next few months are likely to be volatile, as investors assess warm demand against another potential increase in oil supply from producers, including the Organization of Petroleum Exporting Countries (OPEC) and allies.
“The markets have been in turmoil and disorderly for the past 12 months, with lasting implications, as we begin to form new outlines of normality towards a post-virus equilibrium,” said Mitsubishi UFJ Financial Group analysts.
The volatility index of the ETF Cboe Crude Oil rose to a record high of 517.19 in April. Since then, the index has dropped to about 40, but it is still about 60% higher than a year ago, show data from Refinitiv Eikon.
GRAPHIC: Oil volatility goes up –
Reporting by Stephanie Kelly and Devika Krishna Kumar in New York; Editing by David Gaffen and Matthew Lewis