If one word could sum up 2020 for crude oil, it would be ‘volatile’. Key highlight of 2020 for crude oil was the plunge in WTI price in April into negative territory, while Brent dropped below $20 a barrel due to coronavirus global pandemic as well as the Saudi Arabian and Russian confrontation on the price front. No such volatility has been seen in the oil market in the recent past – not even the global financial crisis. Another important aspect was the deal between OPEC and non-OPEC members including Russia to curtail production flows to stabilize prices.
What followed was a year spent struggling to recover as demand destruction from COVID-19 continued amid stimuli such as COVID_19 vaccine rollout in key economies. As crude oil demand tanked in 2020 by some 9.8 million barrels per day, supply fell in response by around 13 million barrels from OPEC, non-OPEC, US, and Canada. Though crude oil prices have recovered since, they remain shy of beginning 2020 levels.
As a turbulent year comes to an end, it might not be an end to turbulence in oil prices; oil market is known for volatility, which reached new levels in 2020 and might continue to rear its head every now and then in 2021.
Many are eyeing recovery cycle in oil prices in 2021 with respect to rebound in demand and consumption. From the low base of 2020, the growth in demand with be significant. However, will consumption be back to pre-COVID levels is not something many believe in. where demand from the transport sectors expected to pick up, fuel consumption by air travel sector will likely remain depressed.
On supply side, production will rise in comparison to 2020; but a lot depends on how OPEC plus plans work. As per the latest plans, OPEC+ participating countries decided to voluntarily adjust production by 0.5 million barrels per day from 7.7 million barrels per day to 7.2 million barrels per day while agreeing to hold monthly OPEC and non-OPEC ministerial meetings to assess market conditions.
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