Grading My 2020 Energy Predictions

At the beginning of each year, I make several predictions about the energy sector. You can see those predictions and read the context at Energy Sector Predictions For 2020.

There is still a little over a week left in 2020, but I believe there is enough available information to gauge the accuracy of these predictions.

As always, I provided predictions that are specific and measurable. Following each prediction, I discuss what actually happened in 2020, and conclude whether the prediction was right or wrong.

1. For the first time since 2014, the closing price of WTI will not drop below $50/bbl

This was undoubtedly the fastest a prediction of mine has ever failed. The year started off on a reasonably bullish footing for oil. Many analysts were projecting a shortfall in oil production for the year, and OPEC had been pretty aggressive in keeping oil prices propped up.

But scarcely a month after I made the prediction, two factors combined that completely upend the oil markets. The first was that the spreading Covid-19 pandemic in China caused oil prices to weaken on concerns about a slowdown to the Chinese economy. As a result, OPEC members met with Russia with the hope of announcing additional production cuts that might stabilize oil’s free fall. Russia refused, and that sent oil prices into a nosedive.

As the Covid-19 pandemic gained a foothold in the U.S., oil demand plummeted. Crude oil futures fell into negative territory for the first time ever. As a result, my prediction was nearly 180 degrees wrong: Oil prices hardly spent any time above $50/bbl in 2020.

2. U.S. oil production growth will fall below 1.0 million BPD

Covid-19 had a big impact here as well. For all of 2019, U.S. oil production averaged 12.2 million barrels per day (BPD). I expected growth to slow in 2020, but it did more than slow. Due to the impact of the Covid-19 pandemic on oil demand, U.S. oil production actually declined in 2020.

The numbers won’t be finalized until early 2021, but it looks like the production numbers for 2020 will be around 11.5 million BPD. That would represent an annual decline of nearly 6%.

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