The Corona pandemic in 2020 was an unexpected event that caused several disruptions in the energy sector, and the development of the epidemic this year will be the largest variable affecting the markets.
In a report published by the American oilprice website, writer Robert Rapper said that energy markets are expected to recover and prices will return to their previous era. In the event that these expectations are wrong and the process of controlling the spread of the epidemic takes longer, then oil and gas prices may witness a significant decline.
Below, the author’s highlights of this year’s energy trends.
1. The average price of WTI crude will be between 50-55 dollars per barrel in 2021
Oil is still the most important commodity in the world. To predict the direction of oil prices, the author takes into consideration supply and demand trends and available stocks. Since we do not know how long it will actually take to bring the epidemic under control, there is uncertainty about the direction of oil prices.
The writer stated that oil prices rose in the last quarter of 2020, and are currently approaching the price they were a year ago, and this indicates the possibility of a major recovery. However, OPEC member states have surplus production capacity that will be used in the event that demand starts to rise, which will affect oil prices.
The price of WTI crude was $ 39.16 a barrel, which is about $ 20 less compared to 2019. However, it is almost certain expectations that the average price of WTI crude will reach a higher price this year compared to what it was last year.
The spot price of West Texas Intermediate crude is now $ 53 a barrel. Given that the demand for it is still at its lowest levels than it was a year ago, this heralds a further decline in prices. It is expected that the average annual price of West Texas Intermediate crude in 2021 will be between 50 and 55 dollars per barrel.
In the event that the outbreak of new strains of “Covid-19” virus is not contained by the available vaccines, or if it takes longer than expected, oil prices will drop to below $ 50. If the epidemic is brought under control quickly, oil prices could see a major recovery and cross the $ 55 threshold.
The demand for oil in the United States is weaker than it was a year ago, but this does not apply to the rest of the world. For its part, OPEC is still ready to increase production, and prices are likely to continue to rise even before OPEC’s move.
2. Decline in total US oil production
According to the US Energy Information Administration, US oil production declined in the second half of 2020. Currently, annual production is still two million barrels per day lower compared to last year. Even with the increase in the number of oil drilling rigs in recent weeks, production remains down by 57%, compared to last year.
US President Joe Biden issued decisions to stop issuing oil and gas leasing contracts and new drilling permits on US land and water for a period of 60 days, and canceled the Keystone pipeline permit, as an expression of his administration’s position on the oil industry. In fact, all of these factors predict the possibility of a continued decline in US oil production since late 2020.
It is noteworthy that the monthly report of the US Energy Information Administration stated that US oil production increased by 692 thousand barrels per day in November to reach 11.124 million barrels per day, which is the first time that production exceeded the barrier of 11 million barrels per day since last April.
3. The average price of natural gas will be at least 25% higher compared to 2020
Last year, the writer expected that natural gas prices would reach their lowest levels in more than 20 years, which is what has already happened, as the average natural gas price for the Henry Hub Index reached $ 2.03 per million British thermal units in 2020, the lowest annual level recorded since That the Energy Information Administration began tracking this data in 1997.
However, the decline in oil production is closely related to the decline in natural gas supplies, which contributed to the recovery of natural gas prices in late 2020. Accordingly, the author expects the continued recovery during 2021 and the average natural gas prices reaching $ 2.50 per million British thermal units in 2021, registering an increase Of 25% or more.
4. Increase in US oil imports in 2021
US oil imports have decreased steadily since 2005, when they averaged 10.1 million barrels per day. By the end of 2020, however, US crude oil imports had decreased to 6 million barrels per day.
The opposite will happen during 2021, as the collapse in prices last year and the new regulations for the Biden administration will likely lead to a decline in US oil production this year as well, in exchange for a recovery in overall oil demand, and this means that the United States will resort to imports to fill the shortfall in production. According to the writer’s expectations.