During the past week, the price of BRENT oil rose from about $ 50.82 per barrel at the end of the trading day on 25/12/2020 to about $ 51.17 per barrel at the end of the trading day on 1/1/2021 and the price of a WTI barrel rose from about $ 48.08 per barrel at the end Trading on 25/12/2020 at about $ 48.52 a barrel at the end of the trading day on 1/1/2021. The rise in the price of oil took place against the background of market expectations for the OPEC + meeting to be held on January 4, in which Russia is expected to support further easing of production quotas and increased output.
Global supply
Following on from the above, OPEC + members are expected to meet on January 4 to assess the situation in the oil market. Russia’s deputy prime minister said in the second half of December 2020 that during the meeting, Russia would support further easing of production quotas and increasing the oil production of group members in early February by an additional 500,000 barrels per day.
This, after the easing of production quotas came into effect this month, which is expected to increase oil production by 500,000 barrels of oil per day, while Russia’s production quotas increased by 125,000 barrels per day. However, some OPEC members tend to be more conservative and want to examine the market carefully, due to the fragility of market demand against the background of the continued spread of the corona virus. It should be noted that Russia’s oil production in December 2020 was slightly higher than November’s production and Russia generated about 42.46 million tons of oil this month, which is equivalent to about 10.04 million barrels per day, compared to an output of about 41.03 million tons of oil in November.
Alaska’s North Slope County oil producers are expected to begin two major oil projects by 2021 that could add about 200,000 barrels a day to Alaska’s oil production by 2025. This, after its oil output in 2020 was about 400,000 barrels per day compared to an output of about one million barrels per day in 2000.
A survey by the Fed’s branch in Dallas shows that oil and gas sector activity rose during the last quarter of 2020 and about half of the oil producers surveyed expect improvement during 2021. In addition, oil producers noted less uncertainty around their forecast for the next quarter compared to the last quarter of The year 2020 and the FED uncertainty index reached the lowest level recorded since 2017.
Oil and natural gas producers as well as service providers in these areas have planned their budget for 2021 at a price of about $ 44 per barrel of WTI oil. This price is lower than the price that the executives planned for their 2020 budget, which was $ 50 a barrel.
The increase in the number of rigs during the last quarter of 2020, from the low level of the last decade in which only 172 rigs operated at the bottom, also indicates the improvement in the market and the expectation of further recovery after the first half of the year due to the price war. . The continued rise in market prices is expected to support a further increase in the number of US active rigs and increase its oil output.
US oil inventories decreased in the week ending December 25, 2020 due to the increase in oil exports and a decrease in gross imports, which led to a decrease in net oil imports. The weekly oil report of the EIA (US Energy Agency) indicates A decrease of approximately 6.1 million barrels in the commercial inventory in the week ending December 25, 2020. This decrease occurred against the background of a decrease of 764,000 barrels per day in net oil imports due to an increase in oil exports of approximately 526,000 barrels per day and a decrease of approximately 238,000 barrels per day. Gross oil imports In addition, the decline in inventory levels was also due to an increase in the refinery activity rate, which reached 79.4%.
Global demand side
Demand for fuel for transportation in the US has risen slightly in the past week and has remained at a level higher than 8 million barrels per day. Demand for jet fuel has also risen slightly and has remained at a relatively high level in recent weeks. The decline in gross oil imports coupled with rising exports indicates that domestic demand remains Low, but the strengthening of external demand partially offsets the impact of the decline in US domestic demand.
Demand for jet fuel is expected to be a challenge for oil producers and refineries also during 2021. According to market estimates, demand for jet fuel in the US is expected to recover during 2021 to about 1.5 million barrels per day. However, this recovery accounts for only half of the damage 2020 resulting from the spread of the corona virus which severely affected the demand for flights and consequently the demand for jet fuel which fell by tens of per cent compared to the pre-epidemic situation.
The natural gas economy
The price of natural gas in the US (Henry Hub) has risen slightly in the last week and reached $ 2.55 per MMBTU. The increase in the price of natural gas came against the background of winter in the US and the demand for domestic and industrial heating and in particular against the external demand for natural gas. . These demands are expected to further reduce the natural gas inventory which is at a relatively high level for this period and it is possible that the inventory has even fallen below the multi-year average of inventory at this time of year.
According to a survey conducted by the Fed branch in Dallas among oil and natural gas producers and service providers in the field, the average price of natural gas (Henry Hub) in 2021 is expected to be about $ 2.76 per MMBTU while the average spot price in 2021 of gas Natural in the US is expected to be about $ 2.60 per MMBTU.
Expect medium-term
The long-term forecasts of the various forecasters speak of an increase of about $ 51.5 per WTI barrel on average in 2022-2023 and about $ 54.5 per barrel of BRENT (see table). Forecasters’ forecasts, which predict a small price increase, give significant weight to real progress towards the return of oil demand to “normal” levels (during 2022-2023) and in our opinion are reflected in an exceptional degree of optimism of sentiment (see chart below). 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 realizing relatively optimistic market forecasts. However, this is a very high weight of consensus for price increases, which does not leave enough room for developments that may lead to a more moderate than expected increase in prices and even to a certain decrease.
In line with the above, medium-term oil price developments also depend to a large extent on OPEC +’s decisions regarding further production quotas easing and compliance with quotas during the first quarter of 2021. In addition, the degree of vaccine distribution along with population cooperation while countries continue to deal with the virus. (Including mutations) Until the general population is vaccinated, there will be an important factor as well. In our estimation, a sufficient global degree of vaccination will not be achieved by 2021 in order to restore the demand for oil to its level before the epidemic. If the data on compliance with the restrictions are positive and the vaccine turns out to be effective and safe against the mutations of the virus, then we estimate that the price of oil is expected to rise during 2021 to about $ 55 per barrel.
