My 2021 Energy Sector Predictions

When I made my 2020 predictions a year ago, the world was on the cusp of a pandemic that would upend the oil markets. In the process, it upended two of my energy sector predictions, but three others ended up being correct.

The COVID-19 pandemic last year was a black swan event that caused unprecedented fallout across the energy sector. The evolution of the pandemic this year will be the largest variable impacting the energy sector. Yes, larger even than any policies our new President will enact.

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The energy sector is already off to a fast start in the equity markets this year, as the market is anticipating a return to normal. But if those expectations falter and it takes longer than expected to get the pandemic under control this year, there is a risk of a significant pullback.

Against that backdrop, below are my predictions for some of the significant energy trends I expect this year. As I usually point out, the discussion behind the predictions is more important than the predictions themselves. That’s why I provide extensive background and reasoning behind the predictions.

I also make predictions that are specific and measurable. At year’s end, there are specific metrics that will indicate whether a prediction was right or wrong.

1. The average price of WTI in 2021 will be between $50/bbl and $55/bbl.

Oil is still the world’s most important commodity, so I always try to lead off with a prediction on the direction of oil prices. I generally make this prediction by looking at supply and demand trends, as well as inventory levels.

A year ago, I thought my prediction was aggressive, but sound. I felt like oil prices would be strong all year. But this was one prediction the pandemic upended within a month of making it.

Because we don’t know how long it’s going to take to get the pandemic really under control, there’s a lot of uncertainty around the direction of oil prices. Oil prices rallied in the fourth quarter, and are now close to where they were a year ago. That anticipates a strong recovery. However, OPEC is sitting on spare production capacity that they can bring online if demand starts to rise. That will provide some headwinds for oil prices.

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