Development of the price of oil
Over the past week, the price of BRENT oil rose slightly from about $ 54.5 per barrel at the end of the trading day on 15/1/2021 to about $ 54.76 per barrel at the end of the trading day on 22/1/2021 and the price of a WTI barrel fell slightly from about $ 52.36 Per barrel at the end of trading on 15/1/2021 to approximately $ 52.25 per barrel at the end of the trading day on 22/1/2021.
Global supply
OPEC + members are pleased with Saudi Arabia’s decision to voluntarily cut its oil production in order to stabilize the oil market. India, the third largest oil consumer in the world, complained about the sudden cut which surprised consumers who expected to receive a larger amount of oil. India’s oil minister told OPEC’s secretary general that the sudden cut creates confusion for consumers and may encourage them to look for alternative energy sources. On the premium that Asian countries pay for the oil they consume.
Libya’s oil production shrank by about 200,000 barrels a day after an explosion in the country’s oil pipeline, indicating the true state of Libya’s oil production infrastructure and the country’s difficulty in maintaining high oil output after a decade of civil war. Libya’s oil production dropped to about a million barrels a day after Libya’s oil company Waha Oil decided to close the oil pipeline leading to the country’s largest port.
Iran has begun to increase its oil production and the Iranian oil minister said it expects to reach production levels in the next two months before the US sanctions are imposed on it. According to Iran, the oil market could absorb the increase in its oil production to around 4 million barrels a day. It should be noted that the Iranian oil minister refused to indicate the current level of Iran’s oil production but he noted that oil production is higher than the existing estimates in the market.
US oil inventories rose in the week ending 1/15/2021, after five weeks in which inventories fell, due to an increase in net oil imports. Accordingly, the EIA (US Energy Agency) weekly oil report indicates On an increase of about 4.4 million barrels in commercial inventory in the week ending 15/1/2021 which occurred due to a net increase in imports resulting from a decrease of 194,000 barrels per day in gross imports compared to a decrease in exports of 760,000 barrels per day and despite a continued increase in activity Refineries to 82.5%.
The aggregate decline in inventory levels includes a large degree of variation in regional inventory changes, including a decline in inventory in Cushing Oklahoma and an increase in inventory in the Gulf of Mexico, the west coast and the eastern debt of the U.S. This development appears to be related to Of oil relative to the future price of oil.
President Biden has revoked the approval given for the Phase 4 oil pipeline (XL) project, which has won the support of the Trump administration as part of a cross-border project to expand North America’s energy sector. This involves changing and improving the route of the existing network and expanding the network’s transmission capacity, in a way that was expected to lead to up to 830,000 barrels per day from Alberta in Canada to Nebraska in the USA.
Eliminating this phase of expanding and changing the route of the pipeline is a restraining factor in the growth of the energy market in North America (Canada and the United States). The pipeline is wholly owned by TC Energy, a leading company in the field of oil transportation in North America. President Biden signed the presidential decree revoking the permit granted for the fourth phase of the pipeline in question, reflecting the hatred’s ambition to realize its promise to halt the expansion of the U.S. energy sector as part of an overall environmental effort.
On the issue of the environment and climate change prevention, President Biden has re-attached the United States to the Paris Agreement to preserve the global climate and froze the lease agreements for oil exploration in the Arctic National Reserve that Trump approved at the end of his term. Federal and make up about 10% of U.S. oil supplies. This, along with the suspension of other lease agreements for coal mining.
These steps by the President, upon taking office, may contribute to tightening supply in the global oil market in the years 2021-2022.
Global demand side
Demand for U.S. jet fuel has fallen back to below 1.1 million barrels a day, after reaching more than 1.4 million barrels a day in the week before, and is still at lower levels than before the crisis. Demand for automotive fuel has risen slightly but its recovery is expected to take time Due to the tightening of restrictions in some areas, which reduce traffic on the roads.
For example, in New York there was a decrease in traffic at the beginning of the year and traffic on New York’s 11 highways in the second week of January was about 3.7% lower than the level a month ago, indicating that the recovery in US fuel demand is expected to take time.
The refineries in China processed about 14.19 million barrels of oil per day in December 2020, slightly below the high level in November 2020 of 14.26 million barrels per day. This is against the background of improving the marginal profit of the refineries as well as against the background of fuel storage before the holiday period in China. In the sum of 2020, the amount of oil processed by Chinese refineries increased by 3% and reached a record level of 674.4 million tons. China’s gasoline exports in December fell by about 11% (m / m) and China exported 390,565 barrels of gasoline per day and 358,561 barrels of diesel per day.
In addition, Chinese imports of Iranian oil rose sharply in December 2020 to 519,000 tonnes, almost double imports in November, after Joe Biden won the US presidential election, after Iran announced it planned to increase its oil production. Which has been interpreted in the market as China as expecting relief from US sanctions under the new US administration.
A resurgence of the corona virus in China has led to closures in outbreak areas and a call to refrain from traveling during the upcoming Chinese New Year and to encourage people to stay at home during the holiday, raising fears that demand for fuel in China will hurt in the short term.
The China Railway Company has reduced the estimated number of passengers during the holiday season from 407 million to 296 million. This is against the background of the low number of train ticket reservations. This is a significant decrease in the number of passengers, but it is still higher than the number of passengers in the holiday in 2020 when there was a tight closure in a large number of regions in China.
The re-spread of the virus began to give its signals and for the first time since October 2020 traffic loads in Shanghai and Beijing in the early hours of early last week were lower than the level in 2019, indicating the expectation of declining domestic demand for fuel used for transportation in the near term.
In India, the demand for fuels weakened slightly at the beginning of the year. Diesel sales, which are the best-selling type of fuel in the country, fell in the first half of January by about 6.6% compared to the corresponding period in December 2020 and by 3.5% compared to the corresponding period last year. In addition, India hopes the new US administration will ease the sanctions imposed on Iran and Venezuela so that it can diversify its oil resources.
The amount of oil stored in tankers at sea, which were stationary for seven days, a figure which is an indication that they are stored as inventory and not on their way to customers, decreased in the week ending January 15 by 17% (w / w) from 96.3 million barrels to 79.52 million Barrels. Which indicates a continued reduction in global oil inventories which is even expected to continue to shrink during the first quarter of the year in which the oil market is expected to be in deficit.
Rising oil prices may make it a little easier for oil producers in Africa
Under OPEC +’s current production quota plan, quotas are expected to be eased in April, enabling Africa’s major oil producers to increase their oil production. In Nigeria, oil output at the end of 2021 is expected to be 1.70 million barrels per day, compared to 1.52 million barrels per day in December 2020, and in Angola oil output at the end of 2021 is expected to be 1.45 million barrels per day compared to 1.18 million barrels per day in December 2020.
Looking at the whole of 2021, the oil sector’s contribution to Nigeria is expected to be lower than in 2020, but the decline is expected to be relatively small, at around 1-2%, compared to the decline in GDP contribution that was in 2020 when the contribution of the oil sector to GDP fell On the other hand, oil production in Angola is expected to grow this year and its contribution to GDP is expected to increase by about 4-5% in 2021. After the contribution to GDP shrank by 10% in 2020. The rise in oil prices along with the recovery in production during the year may increase Exports.
It is estimated that Angola’s oil exports will grow by about 10% of GDP this year, compared to 2020, while Nigeria’s exports are expected to grow by about 1% of GDP this year. The increase in exports is expected to reduce the current account deficit of their balance of payments, particularly in Angola.
The natural gas economy
The price of natural gas in the US (Henry Hub) fell last week and reached $ 2.49 per MMBTU. The price drop occurred against the background of relatively mild weather expectations in February, which is expected to ease the demand for natural gas. However, we estimate that the price of natural gas Will continue to be supported by the harsh winter in Asian countries.
In addition, natural gas exports from Canada to the US reached a historic high of 3.76 BCF per day in the first half of January, amid high demand and the number of active gas rigs in the US rose by 6 to 430 amid expectations of improved earnings which may even lead to To increase investments and expenditures on the search for natural gas reserves.
According to the EIA, the amount of gas in U.S. subterranean reservoirs in the week ending Jan. 15 dropped by 187 BCF, slightly more than expected in the market, to 3,009 TCF. Most of the demand was due to the cold weather that drove demand for homes and industrial centers. In addition, the demand for natural gas from power plants increased by about 2.2 BCF per day due to the weakness of wind power generation and against the background of the loads on the power plants.
Expect medium-term
Voluntary cuts in Saudi Arabia’s oil production are expected to increase the deficit in the oil market in the first quarter of the year and also reduce global oil inventories. If Saudi Arabia and the other members of OPEC + comply with the quotas, both formal and voluntary, this will allow a supply level that will support the current price level.
In particular, in light of the policy of the new US administration which is expected to further tighten the oil market during the years 2021-2022. In such circumstances, and if the dollar continues to weaken worldwide, then oil prices may rise further beyond $ 55 per barrel (current level If the immunization process proves to be effective and safe and there is widespread cooperation among the population, it will create additional support for a price level higher than about $ 55 per barrel (current level). However, tightening restrictions in many countries along with regional closures in China and directive to avoid Travel during the holiday in China, may weigh on the price in the coming weeks.
It seems that the market is already very much pricing a future deficit that may be created in the market. Advances towards a global marketing of a variety of vaccines, which can be easily transported, and brought to the developing world at a low price, is an important signal of the potential increase in demand for crude oil in the future, which is already reflected in a very high “consensus” of oil prices.