2020 Crude Oil Prices Were the Lowest in More Than 15 Years

The U.S. Energy Information Administration (EIA) reported Jan. 6 that response to the COVID-19 pandemic in the first half of 2020, led to steep declines in petroleum demand, highly volatile crude oil markets, and rising U.S. and global liquid fuels inventories. From January 2020, when the first case of COVID-19 in the United States was confirmed, and March 13, when the President declared a national emergency, West Texas Intermediate (WTI) crude oil futures prices fell to less than $0 during the day on April 20 and 21, the first time the price for the WTI futures contract fell lower than zero since trading began in 1983.

While Brent crude oil futures prices did not fall lower than zero, they declined to $19/bbl on April 21, the lowest nominal price since Feb. 7, 2002. In real terms, though, the price was much lower. The second half of 2020 was characterized by relatively stable prices as demand began to increase, global production declined, primarily because members of the OPEC and partner countries (OPEC+) cut production, and inventories fell. Across all of 2020, the price for WTI averaged $39/bbl, the lowest in nominal terms since 2003, and the price for Brent averaged $43/bbl, the lowest in nominal terms since 2004.

Demand for petroleum products fell sharply in early 2020 as a result of the pandemic. In April, global demand for liquid fuels fell to 80.6 MMbbld, the lowest level since May 2004 and 20.3 MMbbld lower than April 2019 demand. In the U.S., the four-week rolling average gasoline demand (by product supplied) fell to 5.3 MMbbld on April 24, down 44% year on year. Jet fuel demand reached an annual low of 558,000 bbld on May 29, off 69% from the same period in 2019. Distillate demand did not fall as much as gasoline or jet fuel demand, declining 20% from the same period in 2019 to an annual low of 3.0 MMbbld on May 1.

Responding to the drop in demand in the first part of 2020, U.S. refiners curtailed operations, and between March 13 and May 8, four-week average gross refinery inputs fell 20% to 13.1 MMbbld, the lowest level since September 2008 when Hurricanes Gustav and Ike disrupted refineries along the U.S. Gulf Coast. Crude oil production in the U.S. did not decline as quickly as refinery runs. In April, U.S. crude oil production averaged 12.0 MMbbld, off just 0.7 MMbbld, or 6%, from March. From April to May, crude oil production fell 2.0 MMbbld (17%), the largest monthly decline in EIA data, which dates back to 1920. The steep decline in demand and refinery runs, combined with shallower declines in crude oil production, contributed to a significant increase in oil inventories. U.S. commercial crude oil inventories reached a record high of 540.7 MMbbl on June 19, up 87.0 MMbbl, or 19%, since the national emergency was declared on March 13. In the crude oil storage hub of Cushing, Okla., crude oil inventories rose by 27.0 MMbbl, or 70%, between March 13 and May 1, reaching an annual high of 65.4 MMbbl, 83% of the working storage capacity.

The first half of 2020, EIA estimates global liquid fuels stocks built at an average of 6.5 MMbbld and reached a high of 19.7 MMbbld in April, the largest stock build in EIA data, which dates back to 1993. While EIA doesn’t collect data on global petroleum inventory levels, data on inventories are available for countries in the Organization for Economic Cooperation and Development (OECD) and can indicate global trends. OECD crude oil and liquid fuels inventories began increasing rapidly in March and reached a record high of 3.2 Bbbl in July. In light of the weak demand and rising inventories globally, on April 9, OPEC+ agreed to reduce their crude oil production beginning in May.

OPEC crude oil production averaged 24.3 MMbbld in the second half of 2020, down from 27.0 MMbbld in the first half of the year and 4.6 MMbld less than production in the second half of 2019. U.S. crude oil production was also relatively low in the second half of 2020. From July through the week ending Jan. 1, 2021, U.S. crude oil production averaged 10.8 MMbbld, down from 12.4 MMbbld in the first half of the year and 1.7 MMbbld lower than the second half of 2019.

In the second half of 2020, petroleum demand recovered while global crude oil production remained low, resulting in an estimated 2.8 MMbbld draw on global liquid fuels stocks, and contributing to OECD inventories falling to 3.0 Bbbl in December. In the U.S., commercial crude oil stocks fell to 485.5 MMbbl the week ending Jan. 1, 2021, down from the record high of 540.7 MMbbl reached on June 19, 2020.

Supported by increasing petroleum product demand and crude oil stock draws, crude oil prices rose in the second half of 2020. The price of WTI climbed to $40/bbl on July 1 and from July through August traded within a range of $4/bbl. In November 2020, crude oil prices rose as markets responded to the positive news of several potential vaccines for COVID-19, and WTI and Brent closed the year at $49/bbl and $52/bbl, respectively.

SOURCE: The Weekly Propane Newsletter, January 14, 2021. Weekly Propane Newsletter subscribers receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to inboxes every week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary, and much more not found elsewhere.