During the past week, the price of BRENT oil rose from about $ 51.17 a barrel at the end of the trading day on 1/1/2021 to about $ 55.88 a barrel at the end of the trading day on 8/1/2021 and the price of a WTI barrel rose from about $ 48,52 a barrel at the end. Trading on 1/1/2021 to about $ 52.24 per barrel at the end of the trading day on 1/1/2021. The rise in the price of oil to the highest level in the last ten months occurred due to the expectation of an increase in the market deficit in the first quarter of the year following the OPEC + decision last week and against the background of the weakening dollar worldwide.
Global supply
Continuing the above, at the OPEC + meeting on January 4, the group agreed to ease the production quotas of Russia and Kazakhstan in February-March 2021 and they are allowed to increase along with oil production by 75,000 barrels per day, but the quotas of the rest of the group remain unchanged. Saudi Arabia has pledged to voluntarily reduce oil production by about 1 million barrels per day to 8.12 million barrels per day, a cut of about 12% of its oil production, in February-March, which will offset more than the increase in production approved for Russia and Kazakhstan.
As a result, oil supply in the first quarter of 2021 is expected to be lower than expected after the OPEC + meeting in December 2020. Saudi Arabia’s energy minister justified this decision by saying that short-term demand remains fragile amid tightening restrictions worldwide to contain the spread of corona virus. He added that in April Saudi Arabia’s oil production will rise and return to the level allowed by production quotas.
The group’s next meeting is scheduled for March, instead of February, at which the group members will review the market situation and decide on the April quotas. The U.S. oil shale industry is expected to be one of the major beneficiaries of this offsetting in Saudi Arabia’s oil production and the expected rise in oil prices, but that does not mean that the number of active rigs in the U.S. will rise rapidly in the near future.
This is due to fears of low demand in the first quarter due to rising morbidity in a number of U.S. countries which has tightened restrictions. Saudi Arabia has not led to a deep cut among all OPEC + members due to opposition from some group members and fears of encouraging US oil shale industry production. In competing with them. Following this decision, Saudi Arabia raised the prices of oil that will be supplied to its customers in Asia and the US in February, against the background of rising oil prices and consequently Iraq also increased the price of oil to be supplied to its customers in Asia.
OPEC Group increased its oil output in December, for the third month in a row, by 190,000 barrels per day to 25.45 million barrels per day, amid a continued rise in oil production in Libya. Saudi Arabia has increased its oil production and it has produced 8.98 million barrels per day, a level very close to its allowable quota of 8.99 million barrels per day. In addition, Saudi Arabia even raised its oil exports in December 2020 to the highest level since April, due to the increase in exports to East Asia with an emphasis on China and Japan.
Saudi Arabia’s oil exports rose in December to about 6.7 million barrels at sea, compared with about 6 million barrels per day in November. At the same time, Iraq has also increased its oil exports in the December sense and may have exceeded its production quotas under OPEC + agreements, which could raise tensions between group members. Venezuela’s oil exports fell in December 2020 by about 50% to a historic low of 216,613 barrels per day due to US sanctions along with increased competition from OPEC + members.
US oil inventories decreased in the week ending 1/1/2021 due to the increase in refinery activity, along with the remaining high level of exports. Accordingly, the weekly oil report of the EIA (US Energy Agency) Indicates a decrease of about 8.0 million barrels in the commercial inventory in the week ending January 1, 2021. As stated above, this decrease occurred against the background of the increase in the activity rate of the refineries to 80.7% and despite the increase of 36,000 barrels per day in oil imports Net due to the increase in gross imports by about 43,000 barrels per day compared to the increase in exports by about 7,000 barrels per day.
Global demand side
Demand for jet fuel has fallen to its lowest level since the beginning of November 2020 and demand for US transportation fuel has fallen below 8 million barrels per day and has reached its lowest level since May 2020, suggesting a fragility of market demand recovery. Restrictions in a large number of U.S. states.
The OPEC secretary said the group expects demand to rise by 5.9 million barrels per day during the year compared to 2020 to 95.9 million barrels per day. When, most of the increase is expected to be among non-OECD countries where demand is expected to increase by 3.3 million barrels per day.
The growing demand for energy in China for heating due to the unusually cold winter season has led to a shortage of electricity in several areas in China and some have even begun to limit the amount of electricity to industrial and commercial customers to ensure there is enough electricity to heat homes during the winter. As a result, factories have increased the use of generators, which has led to an increase in demand for diesel and the price of diesel has risen to the highest level since April 2020.
The amount of global oil stored in tankers at sea fell in the week ending January 1 by 6.7% (w / w) to 96.63 million barrels. In the Pacific, Asia fell by 8.7% (w / w) to 60.49 million barrels, while in Europe the amount of oil stored at sea fell by 41% (w / w) to 5.95 million barrels.
The natural gas economy
The price of natural gas in the US (Henry Hub) rose last week and reached $ 2.73 per MMBTU. The increase in the price of natural gas came against the background of a decrease of about 130 BCF in the gas inventory in underground reservoirs and expected further decline due to external demand for liquefied natural gas ( LNG) which is expected to lead to an increase in natural gas exports.
The rapid economic recovery in China is expected to raise its demand for natural gas during the year to a new high. This is while China is expected to meet its long-term goals of protecting the environment and reducing air pollution through the use of environmentally friendly energy. According to market estimates, China’s natural gas demand in 2021 will rise to 360 BCM, compared to 332 BCM demand in 2020. When, Chinese energy company Sinopec’s estimates are more moderate and it estimates China’s natural gas demand will rise this year to 340-345 BCM.
Expect medium-term
OPEC +’s decision, together with a voluntary cut in Saudi Arabia’s oil production, raises the possibility that the oil market will be in deficit in 2021, which supports a rise in oil prices beyond $ 55 a barrel and possibly even $ 60 a barrel if compliance is favorable and the vaccine proves effective And also safe from the mutations of the virus.
Also, as long as the dollar remains relatively weak, and does not strengthen again, this will support the current level of oil prices and possibly even beyond that. The clear inverse relationship between the dollar-index and the price of oil is shown in the graph and the meaning of the relationship is that when the other factors are fixed, the weakening of the dollar in dollar-index terms is reflected in an increase in the price of oil. Apart from the great degree of uncertainty that exists in forecasting the dollar route, there is also a risk that rising oil prices will lead to a decrease in OPEC + members’ compliance with production quotas, in order to capture greater market share, which could jeopardize market price stability.
The long-term forecasts of the various forecasters talk about the oil price remaining in its current environment in the years 2022-2023 (see table). Forecasters’ forecasts probably assume that the market is already pricing the future deficit that is expected to form in the market. Advances towards global marketing of vaccines, which can be easily transported, and brought to the developing world, is an important signal of the potential for increased demand for crude oil in the future and for increasing the chances of price stabilization at these levels. However, forecasts do not leave enough room for developments that could lead to price moderation and even some decline.
