Expectations for crude oil prices in 2021 swing between hope for effective vaccines against COVID-19 and concern over uncertain oil demand with a second wave of rising infections.
U.S. oil prices saw an unprecedented decline in the first quarter of 2020. Then in April, West Texas Intermediate (WTI) crude plunged below zero for the first time in history, due to coronavirus-related lockdowns and relevant declining oil demand.
Furthermore, the price dispute between giant oil producer Saudi Arabia, a leading member of the Organization of the Petroleum Exporting Countries (OPEC), and non-OPEC producing countries led by Russia, greatly contributed to the oil price collapse in the spring of 2020.
But oil demand gradually rebounded and so did oil prices in the second half of 2020 as the global crude market rationalized supply while business activities resumed in many economies amid preventive measures against the virus.
On the last day of 2020, WTI for February delivery closed at 48.52 U.S. dollars a barrel on the New York Mercantile Exchange, while Brent crude for March delivery closed at 51.80 dollars a barrel on the London ICE Futures Exchange.
“The rise of oil prices in the last quarter of 2020 followed an agreement among oil producers to extend lower production as well as news about finding COVID-19 vaccines,” Medhat Youssef, a petroleum expert and former deputy chairman of the Egyptian General Petroleum Corporation, told Xinhua.
Before the beginning of 2021, the World Health Organization gave emergency validation to the Pfizer-BioNTech vaccine, which was also authorized by the European Union. Britain authorized the Oxford-AstraZeneca vaccine for emergency use, and China approved its Sinopharm vaccine that was also approved in the United Arab Emirates, Bahrain and recently Egypt. Dozens of other vaccines are currently being tested on humans and animals.
It is widely believed that vaccination against the virus will revive optimism about global economic recovery as well as oil demand and prices.
In light of the hopeful indications, OPEC and OPEC plus countries decided in a ministerial meeting in early December to increase production by 500,000 barrels a day as of January. The meeting will be held every month in 2021 to assess market conditions and needs and decide an adjustable monthly production accordingly.
In its December Short-Term Energy Outlook, the U.S. Energy Information Administration (EIA) forecasts OPEC crude oil production to average 27.5 million barrels per day in 2021, up from an estimated 25.6 million per day in 2020.
The agency also expects Brent prices to average 47 dollars per barrel in the first quarter of 2021 and rise to an average of 50 dollars per barrel by the fourth quarter.
“Brent prices increased in November in part because of news about the viability of multiple COVID-19 vaccines, along with market expectations that the OPEC and partner countries OPEC+ would delay or limit production increases planned for January 2021,” said the agency.
CONCERN OVER SOARING CASES
However, the EIA expects that high global oil inventory levels and surplus crude oil production capacity will restrain oil prices from going up through much of 2021.
The current second wave of COVID-19, with its soaring infections across the world, is likely to cap oil price gains in the early months of 2021 and to cast a shadow of uncertainty about oil demand throughout the new year, analysts believed.
Despite expectations about oil demand recovery in 2021, it is anticipated to remain lower than it was before the pandemic.
“We see an increasing number of COVID-19 daily infections in Europe and the partial lockdowns are still in effect, which is likely to cast their shadow on the oil market in the first quarter of 2021,” said Youssef.
If the vaccines are soon widely available and effective, oil demand is expected to start rising in the second quarter of 2021, he added.
Yousef Alshammari, head of London-based Oil Research at CMarkits and a former researcher at OPEC, urged oil-producing countries “to stay vigilant in 2021 as COVID-19 cases continue to rise around the globe.”
“Meanwhile, positive news on the COVID-19 vaccine front continues to support the markets,” Alshammari wrote in a recent article.