Tracking Crude Oil’s Year-End Price Increases
EIA, in its Dec. 8 Short Term Energy Outlook, reported that crude oil prices in late November reached their highest levels since early March, before responses to COVID-19 affected worldwide economies. Prices for crude oil as well as other risk assets, such as equities and industrial metals, all increased in response to optimism following the announcement of the efficacy of several COVID-19 vaccine candidates. It’s believed the price increase likely reflects solidified market expectations for economic recovery during 2021.
This optimism comes despite record highs in daily cases of COVID-19 during November, which is slowing the recovery of near term transportation demand, particularly in Europe and regions of the U.S.
The Dec. 3 meeting between members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) resulted in a change to their production cuts beginning in January 2021. The group had initially planned to raise production by 2 MMbbld in January 2021, but will instead raise production by a quarter of that amount, or 500,000 bbld. In addition, the group will make a monthly assessment of the state of global oil markets and petroleum demand, adjusting production targets based on prevailing oil market conditions. EIA assumes the OPEC+ group will be highly compliant with this agreement in early 2021. EIA forecasts crude oil production from OPEC to average 25.7 MMbbld in the first quarter of 2021, a 1.7 MMbbld reduction from the November STEO. In part due to EIA’s forecast of more restrained OPEC+ production in 2021, EIA forecasts tighter oil markets next year, particularly in the first quarter. EIA now forecasts first-quarter 2021 global oil inventory draws to average 1.8 MMbbld, which is 1 MMbbld more than previously forecast.
The combined effect of lower supply expectations from OPEC+ countries as well as firmer market expectations for a recovery in global oil demand is contributing to higher prices for near-term oil deliveries relative to prices for delivery further in the future. The five-day moving averages for the Oman crude oil 1st–3rd spread approached 50 cents/bbl in late November, and Brent’s spread settled at -4 cents/bbl on Dec. 3. The WTI spread also increased, but by less than the other crude oils.
The increasing crude oil price spreads reflect both the global oil inventory drawdown since June 2020 as well as expectations for increasing demand and continued stock draws in the coming months. Higher Oman crude oil price spreads, which generally reflect Middle Eastern crude oil exported to Asia, could reflect increasing demand and refinery runs from China, India, or other Asian countries. China’s National Bureau of Statistics reported that crude oil refinery runs in China reached an all-time high of 14.1 MMbbld in October. Based on data from India’s Ministry of Petroleum & Natural Gas, EIA estimates that India’s total petroleum consumption was 4.6 MMbbld in October 2020, the most of any month since February.
SOURCE: The Weekly Propane Newsletter, December 17, 2020. 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.
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