No major relief in sight for oil markets

Ominous clouds continue to hang over the global oil horizon

Rashid Husain SyedWhere will world oil markets be in a year?

With so many variables impacting the markets, no one has the crystal ball to see the crude oil price trajectory a year ahead.

On April 20, 2020, panic had gripped the energy market as a frightening realization dawned on oil traders: The world was rapidly running out of space to store excess crude, reported Matt Egan of CNN Business.

On that fateful day, for the first time in history, crude prices went to negative $37 a barrel. That meant that to avoid storage costs, the seller would pay $37 to anyone who bought a barrel.

Courtesy of the COVID-19 pandemic, global crude oil demand collapsed while supplies continued to be produced unabated. Inventories in developed economies spiked to a record 3.2 billion barrels. That was a whopping 256 million barrels above the five-year average.

This was the stark reality a year ago.

Things have taken a complete U-turn since. With prices in the mid-$60s, crude markets are now a full $100 a barrel above that record low last April. No one could have projected that a year ago.


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Several factors have impacted the market. Thanks to output cuts by producers and considerable demand growth, the global inventory hangover is almost gone. The surplus shrank to just 28 million barrels by February, according to the latest International Energy Agency (IEA) figures. That means about 80 per cent of the overhang is gone.

The glut in the United States is also improving. Last week, for the first time since the pandemic erupted in March 2020, weekly U.S. oil inventories were down year-over-year, according to investment banker Mizuho Securities.

The amount of global floating storage is down to 76 million barrels, the lowest level since the pandemic began, reported ClipperData. That’s a sharp decline from the peak of 200 million barrels last summer, Egan reported.

So where will the crude oil market be a year from now?

Several factors will play significant roles in determining the market direction over the next few months:

  • Will crude producers continue to keep output on a tight leash?
  • How soon can vaccines be rolled out?
  • What will be the state of the pandemic in Asia over the next few months?
  • How will Japan, India and regional economies – like Pakistan and Bangladesh – overcome the pandemic and push the wheels of the economy back to normal?

Answers to these questions will significantly contribute to the direction of global oil demand.

Meanwhile, oil demand continues to be muted in Europe – except for in the United Kingdom.

Concerns and questions about the global economy and future crude demand will have an adverse bearing on the crude markets.

The rapid adoption of electric vehicles worldwide will probably cause global oil demand to peak two years earlier than once projected, energy consultancy Rystad suggested on Wednesday.

World demand is now expected to peak at 101.6 million barrels of oil per day (bpd) in 2026, down from the November forecast of a peak in 2028 at 102.2 million bpd, Rystad reported. Before the pandemic outbreak in early 2020, Rystad anticipated peak oil demand would be reached in 2030 at 106 million bpd.

A few other variables are also getting into play. The growing emphasis on renewables and the green economy will have a lasting impact on crude fortunes. On Thursday, the United States announced it aimed to cut greenhouse gas emissions by 50 to 52 per cent by 2030, from 2005 levels. This could have long-term repercussions on America’s oil and gas industry.

Despite signs of life here and there, ominous clouds continue to hang over the global oil horizon. The future remains hazy.

Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.


The views, opinions and positions expressed by columnists and contributors are the authors’ alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.

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