Should 2020 Be Forgot?

Should 2020 be forgotten and never brought to mind? A year that many in the energy industry would like to forget but most likely will not. The year that oil prices went sub-zero, something people thought could never happen. They never learned the lessons of the potato market. Or the real rule of commodity prices which is never say never. 

The year of Covid saw the global economy grind to a halt because the Covid19 virus causes the biggest drop in global economic output since the days of the Great Depression. For oil, we saw demand drop over 8% the biggest percentage demand drop year over year in history that caused billions of dollars in energy investment write-downs as well as a wave of bankruptcies. Just overnight MarketWatch reported That Exxon Mobil Inc. XOM, +0.80% said it expects higher oil and gas and chemical prices to boost fourth-quarter earnings, but it is also expecting to write down $18 to $20 billions of upstream assets. In a regulatory filing, the oil giant said chemical margins would improve by $200 million to $400 million from the third quarter, while downstream margins would range from down $100 million to up $100 million.

Yet for 2021 the outlook for oil is more positive. Record OPEC Plus cuts along with a major drop in US production has seen the global supply-demand balance tightened. If the trend continues and demand continues its comeback is likely the market will be undersupplied in late 2021. The tougher regulatory environment with an incoming Biden Administration will also hamper the US oil production recovery. Demand will recover before production and that means higher prices in 2021 and beyond

We saw demand for gasoline rise again and refinery runs to jump in the Energy Information Administration (EIA) report, but new strains of the virus are offsetting the bullish data.

The EIA reported U.S. commercial crude oil inventories fell by 6.1 million barrels from the previous week. At 493.5 million barrels, U.S. crude oil inventories are about 11% above the five-year average for this time of year.

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