During the past week, the price of BRENT oil rose from about $ 54.85 per barrel at the end of the trading day on 29/1/2021 to about $ 59.34 per barrel at the end of the trading day on 5/2/2021 and the price of a WTI barrel rose from about $ 52.20 per barrel at the end. Trading on 29/1/2021 at approximately $ 56.85 per barrel at the end of the trading day on 2/5/2021. This increase occurred against the background of the optimism in the market for the recovery of demand later in the year, with the decrease in morbidity which will lead to relief in closures and restrictions imposed in several areas and together with vaccination of a significant part of the population in developed countries.
Global supply
OPEC Group increased its oil output in January by 190,000 barrels per day and estimates that 99% of production quotas were implemented in January by OPEC + members aiming to cut oil production by 7.2 million barrels per day, after increasing the amount of oil produced at -500,000 barrels of oil per day. OPEC + ministers stressed the importance of accelerating the process of rebalancing the oil market without delay, amid uncertainty over developments in the global economy and demand for oil. OPEC +’s committee left the discussion on decisions regarding the group’s future steps to the next meeting expected to take place in early March.
Iraq, the second largest oil producer in the OPEC Group, has not met its commitment to reduce oil production as compensation for non-compliance with production quotas in 2020 and Iraq’s oil production in January was 3.87 million barrels per day, only about 10,000 barrels per day less than in December 2020. Iraq remained virtually unchanged in January and it exported about 3.24 million barrels of oil a day after in December 2020 it exported 3.27 million barrels a day. Russia increased its oil output in January, after OPEC + increased its oil production quota, producing 10.159 million barrels per day, about 1% more than its December 2020 oil output.
Condensate oil and gas exports from West Africa have fallen in the last month to at least the lowest level since January 2018. When energy shipments from the region’s two largest exporters, Angola and Nigeria, fell as well. Oil and gas condensate exports in January from the 10 countries in the region were 3.41 million barrels per day after in December 2020 they will export 3.8 million barrels per day.
U.S. oil inventories declined in the week ending Jan. 29, 2021, despite an increase in net oil imports. Accordingly, the EIA (U.S. Energy Agency) weekly oil report indicates a decline of about one million barrels In the commercial inventory in the week ending 29/1/2021, this decrease is significantly lower than the decrease in inventory in the previous week in which the inventory decreased by 9.9 million barrels.
This is due to the increase in net oil imports which prevented a sharper decline in inventory. The increase in net oil imports was due to an increase of 1,443,000 barrels per day in gross imports alongside the increase in exports of 128,000 barrels of oil per day. The decline in inventories occurred against the background of the continued increase in the utilization rate of US refineries, which has been going on for about four months. This rate, which has already risen from less than 72% to 82.3%, is still relatively low compared to 95% or more. .
The EIA estimates that US oil production is expected to reach about 12.3 million barrels per day in 2023 and for the first time it will exceed slightly the output that was in 2019. Also in 2030 US oil production is expected to reach a peak of 13.8 million barrels per day, When the Permian Basin and the Bakken region will lead to the growth in output.
The Bayden administration revoked about 70 offshore oil and natural gas drilling permits that were found to be invalid because they were issued by officials without the approval of political superiors. This, after instructing the regulators to examine all methods of leasing and issuing permits for the development of fossil fuels (oil, gas, coal, etc.) on public lands and water.
Global demand side
Demand for vehicle fuel has dropped in the past week back to below 8 million barrels a day due to the high morbidity that has led to tightening restrictions and caused people to stay at home for fear of infection. According to the EIA, the fuel inventory off the coast of the Gulf of Mexico in the United States has risen by 4 million barrels and reached 88 million barrels, the highest level since mid-August 2020.
The high supply resulting from the decline in domestic demand, coupled with the decline in fuel exports to Mexico, led to a drop in the price of fuel on the Gulf of Mexico coast, which reached a three-month low. At the same time, demand for jet fuel in the US has fallen sharply in the past week to 750,000 barrels per day, after the previous week it was more than 1.2 million barrels per day, due to tightening restrictions in a large number of countries which led to a decrease in global demand for aviation.
The recovery in demand for aviation in Asia ceased against the background of rising morbidity and tightening of restrictions. Aviation capacity in China has fallen by 20% since September 2020, when demand for aviation returned almost to January 2020 levels, amid government encouragement for citizens to stay at home and not travel for trips during the Rosh Hashanah holiday which is expected to increase demand for aviation in China over the coming month .
In the other Asian countries the recovery in demand for pre-flights was lower when Thailand and Malaysia, whose economies are particularly dependent on tourism, were hit hard.
Aircraft occupancy in Thailand stands at about 13% of the pre-crisis level, after in December 2020 occupancy reached 46% of the pre-crisis level, and in Malaysia the demand for flights fell to 11% from the pre-crisis level after at the end of 2020 the demand reached 31% of the level Of pre-crisis.
The position of the European aviation industry looks better than that of Thailand and Malaysia but less good than that of China. Air traffic in Europe in early February was higher than expected, but it is expected to decline later this month due to rising morbidity expected to tighten existing restrictions in a large number of countries which will reduce some non-essential flights.
Demand for fuel for transportation in Asia has declined, amid rising morbidity that has led to local closures in areas of virus outbreak, which have reduced mobility and consequently reduced demand for fuel. Many parts of Japan are also under closure due to the high morbidity in the country and it is possible that Malaysia will also impose a closure due to the rapid spread of the virus in the country, which will lead to a further reduction in demand for fuels in Asia.
China’s oil inventory has fallen to its lowest level since February 2020, reaching 990 million barrels. This is due to the tightening of the global supply surplus along with the high oil storage costs that reduce the viability of oil storage in order to profit from future price increases.
The natural gas economy
The price of natural gas in the US (Henry Hub) rose sharply last week and reached $ 2.96 per MMBTU. The price increase occurred due to the expectation of significantly colder weather than expected so far, during the coming month. BCF in the underground reserves of natural gas to 2,689 TCF This inventory level is 1.5% lower than the level in the corresponding period last year and 7.9% from the average in the last five years this season and is expected to continue to decline in the near future due to rising demand.
According to the weather forecast from the end of January, more than 25 of the US countries are at real risk of the weather temperature falling below the average for the season. Among them are all the countries in the Midwestern US, which is a crucial area for natural gas demand. For home heating in the US, and they are expected to experience a decline in Miftaura over the coming month.
Expect medium-term
Adherence to production quotas for most OPEC + members along with voluntary cuts in Saudi Arabia’s oil production is expected to increase the oil market deficit in the first quarter of the year and even reduce global oil inventories. If Saudi Arabia and the rest of OPEC + continue to comply with quotas, both formal and voluntary, this will allow a supply level that supports the current price level. In particular, in light of the policy of the new US administration which is expected to act against the expansion of oil production activities during the years 2021-2022.
The decrease in oil inventories, as reflected in the decrease in the “number of inventory days”, indicates a tightening of the market which may even intensify with the increase in demand after easing the restrictions imposed on China, Japan and European countries, and is expected to support high oil prices. “In our opinion, the price of oil is not expected to remain above $ 60 per barrel in the near future for a long time, as the price increase to more than $ 60 per barrel will reduce the incentive for oil producers to maintain low production levels and increase the viability of investing in US oil shale.” In what will lead to an increase in oil supply and bring its price back below $ 60.
It seems that the market is already very much pricing a future deficit that may be created in the market. Progress towards global marketing A growing 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” oil prices. Accordingly, futures forecast a slight decline in the price of oil in the medium term.
