Energy Report: Oil Inflation

Oil demand is coming back and the market seems to be ill-prepared.  Crude oil prices closed above 53 dollars as bullish momentum is building as supplies tighten. Total CEO says he expects that total demand, except for jet fuel, will be back to normal levels by summer. This comes the day after the American Petroleum Institute (API) reported that the US crude supply fell by 5.821 million barrels. While the Energy Information Administration draw may be less, the overall trend for our supply and oil production for that matter, still is on a downward trajectory. The oil market trend towards our near-term target of $55 is intact and while we may see a pullback from that area, this summer, prices will be much higher. 

The Energy Information Administration (EIA) seems to be more optimistic but is still worried about the potential longer-term impact of COVID -19. Fears about permanent demand destruction, as well as the possibility of more shutdowns, is having them waver about their forecast. The EIA Short Term Energy Outlook shows the EIA forecasts Brent crude oil spot prices to average $53 per barrel (b) in both 2021 and 2022 compared with an average of $42/b in 2020.

EIA estimates that global consumption of petroleum and liquid fuels averaged 92.2 million barrels per day (b/d) for all of 2020, down by 9.0 million b/d from 2019. EIA expects global liquid fuels consumption will grow by 5.6 million b/d in 2021 and 3.3 million b/d in 2022. 

The EIA forecasts crude oil production from the Organization of the Petroleum Exporting Countries (OPEC) will average 27.2 million b/d in 2021, up from an estimated 25.6 million b/d in 2020. Forecast growth in output reflects OPEC’s announced increases to production targets and continuing rise in Libya’s production. On January 5, 2021, OPEC, and partner countries (OPEC+) announced that they will maintain the previously agreed-upon January 2021 production increase of 0.5 million b/d. The latest OPEC+ agreement also calls for production increases from Russia and Kazakhstan in February and March. However, additional voluntary cuts by Saudi Arabia for February and March result in lower overall OPEC+ production in early 2021. EIA forecasts that OPEC crude oil production will rise by 1.1 million b/d in 2022.

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