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The Coronavirus pandemic has severely impacted the global oil industry, with crude prices hitting lows not seen in decades amid a decline in demand for energy in 2020.
After starting the year with oil prices at $70 per barrel, supported by the recovery that was helped by the OPEC+ alliance production cuts, crude prices reached $20 a barrel in April.
Earlier this year, crude futures briefly turned negative in the United States.
The same way that helped crude prices recover from the 2014 downturn, which is supply cuts, was carried out by major producers this year to help a recovery of prices and a recent return to the $50 mark.
A recent report by the Financial Times expects a recovery in the demand for oil in early 2021, based on recent projections by the International Energy Agency (IEA).
Demand is expected to increase by 6 million barrels per day (b/d) in 2021, reaching 96.9 million b/d in the next year.
This compares to a record level of demand at 100 million b/d that was seen in 2019.
It was originally expected that the demand for crude oil will increase by one million barrels a day in 2020 and 2021, but this has changed due to the COVID-19 crisis.
Jet fuel is an area that saw a huge drop due to the halt of most international flights as a precautionary measure against the outbreak of the novel virus. Still, a decline of 2.5 million b/d is expected for jet fuel demand compared with the pre-pandemic times.
The change in American administration could also play a role on oil prices. On the long run, the President Elect of the United States, Joe Biden, has vowed to support green energy sources.
On the short term, a revival of the Iran nuclear deal could mean sanctions could be removed and more output is pumped into the market. It remains to be seen how this will affect the market, especially with the recovery of production in Libya.
It is worth noting that the OPEC+ alliance recently approved an output hike that came far less than previously expected, which has been providing support for crude prices and is expected to continue to do the same in 2021.
A summit on 4 January will decide on the future of production cuts, with a monthly meeting expected to identify production policies in accordance with market conditions.
