Oil Market, Exchange Rate and Heating Oil Price Information December 2020.
Brent Crude Dated ($ per Barrel)
Price at Start of Month: $46.96 Price at End of Month: $50.41
Highest Price in Month: $52.04 Lowest Price in Month: $46.96
Pound £ to US Dollar Rate $ Exchange Rate FT:
Start of Month: 1.3363 End of Month: 1.3669
Kerosene (Heating Oil) Cargo Price $ per tonne
Start of Month: $403.50 End of Month: $440.25
Highest Price in Month: $457.75 Lowest Price in Month: $403.50
Resulting in a Heating Oil Price (Pence Per Litre) Monthly range: 2.81 ppl
Christmas in chaos – the vaccination program starts but a new strain of the virus and the Brexit negotiations cause chaos in the market.
Some years there is an energy story so big that there’s no question it belongs at the top of the list. The Deepwater Horizon oil spill in 2010. The Fukushima Daiichi nuclear disaster in 2011. In 2020, that story was the emergence and subsequent consequences of the Covid-19 pandemic.
1. Covid-19 pandemic wreaks havoc on the energy sector
Many of the big energy stories of 2020 are directly attributable to the fallout from the Covid-19 pandemic. Oil demand was crushed beginning in the first quarter as stay-at-home orders were implemented. Airline travel plummeted. Demand for gasoline plunged to a 50-year low. Ethanol demand for gasoline blending fell sharply.
Oil prices fell all the way into negative territory, and U.S. oil production fell in response. Oil companies saw their share values get crushed. All of those are major energy stories, but all were a result of the pandemic.
2. Saudi Arabia/Russia price war
In 2019, global oil prices remained under pressure due to growing U.S. shale oil production. In December 2019, OPEC and Russia attempted to respond to hitting oil prices with new production cuts. But then in January, oil demand also began to be impacted as China took measures to control Covid-19.
OPEC members met with Russia in the hopes of announcing additional production cuts that might stabilize oil’s free fall. This time Russia refused and Saudi Arabia slashed oil prices in response. The result was the beginning of a steep slide in oil prices that worsened as the pandemic gained a foothold in the U.S. In just about any other year, this may have been the top story, but this is another story that is in part a consequence of the pandemic.
3. Natural gas prices fall to the lowest levels in over 20 years
One of my 2020 energy sector predictions — which predated the pandemic — was that we would see the lowest average annual natural gas price in more than 20 years. The previous 20-year low happened in 2016, when natural gas prices averaged $2.52/MMBtu for the year.
Indeed, this year prices have been significantly lower. Through December 15th the average natural gas price for 2020 was $2.00/MMBtu. This is partially a function of the pandemic, but primarily a function of years of expanding U.S. natural gas production.
4. ExxonMobil toppled
ExxonMobil had consistently been the largest publicly-traded energy company by market capitalization for a long time. That changed in early October when NextEra’s market capitalization surpassed ExxonMobil’s to become the largest U.S. energy company. Then, a week later Chevron’s market cap surpassed ExxonMobil’s.
But ExxonMobil has been around for a long time, and they didn’t stay down long. By year-end, the company had rallied and regained its top spot. However, given the trends in recent years away from fossil fuels, it may be just a matter of time before NextEra, buoyed by its strong push into renewable energy, surpasses ExxonMobil permanently.
5. Presidential election
This wouldn’t have been a top story if President Trump had won reelection, but Joe Biden’s victory will signal some sharp changes in energy policy. Biden has already announced that the U.S. will rejoin the Paris Agreement on climate change, and his policies are expected to further discourage the use of fossil fuels and encourage the use of renewables.
There were several other stories worth mentioning. Many of them are direct consequences of the Covid-19 pandemic.
As I write this, Congress has agreed upon the most significant piece of energy legislation in more than a decade, but President Trump hasn’t signed it. The legislation is part of the $1.4 trillion omnibus spending bill, and if President Trump signs it before year-end then this will be one of the top energy stories of the year. Update: President Trump has signed the bill.
2020 also saw a return of hydrogen to the energy conversation as a potential alternative to fossil fuels. Hydrogen, which was once hyped by President George W. Bush, has a spotty history as the “fuel of the future.” But the dramatic decline in the cost of renewable power has helped return hydrogen to the mainstream conversation. Hydrogen stories were everywhere in the media in 2020.
Carbon emissions recorded the largest decline on record, as a result of the oil demand destruction brought on by Covid-19.
Royal Dutch Shell cut its dividend for the first time in 75 years.
China successfully initiated a nuclear fusion reactor for the first time.
Covid-19 accelerated the pace at which companies have accepted the remote worker. This had dramatic implications across many sectors. Video conferencing services exploded as demand for gasoline plunged. Utility consumption patterns shifted. People relied more on companies like Amazon to deliver goods to their homes.
I will offer up my predictions for 2021 in a couple of weeks, but my guess is that Covid-19 will once again dominate the energy conversation. Hopefully, we will be discussing the rebound in the economy as the pandemic comes under control.
By Robert Rapier 31st Dec 2020 for oilprice.com
Industry expected to recover next year, but Covid trajectory and demand concerns loom.
The oil sector was hit harder than almost any other by the pandemic. Oil consumption in 2021 should be at least 5m b/d below where it would have been without coronavirus.
Crude prices fell from near $70 a barrel at the beginning of the year to below $20 in April as lockdowns slashed fuel demand. Prices even briefly turned negative in the US.
After a short but highly damaging price war, Opec and Russia enacted record supply cuts to stabilise the market. But even then, companies were forced to rip up investment plans while European energy majors started to look to a greener future.
As the industry’s turbulent year draws to a close there are, however, signs of a nascent recovery. Crude has crept back to $50 and some investors are betting that the oil cycle is turning, even as expectations of peak demand loom over the horizon.
Here are the five things to watch in 2021:
1. Oil demand
Average oil demand will probably rise by the most on record in 2021. But that is essentially where the good news on consumption ends for oil bulls, with demand expected to be well below pre-pandemic levels.
The International Energy Agency projects consumption will rise by almost 6m barrels a day in 2021 but will average just 96.9m b/d — still well below the pre-pandemic record of 100m b/d in 2019.
Oil demand was also originally forecast to expand by about 1m b/d in 2020 and 2021. That means consumption in 2021 should be at least 5m b/d below where it would have been without coronavirus. In 2009 — as the world economy was slammed by the financial crisis — oil demand fell by just over 1m b/d.
Demand losses come from three main strands. The biggest is jet fuel, with air travel expected to remain severely depressed, consuming 2.5m b/d less than before the pandemic. Gasoline and diesel demand will fare better, but are expected to be restricted in the first half until vaccines are more widely available and will only reach 97-99 per cent of pre-pandemic levels, according to the IEA.
“The next two quarters may not be meaningfully different to now,” said Amrita Sen at Energy Aspects.
The final hit is from the economic fallout, ranging from less demand from manufacturing companies to fewer goods being shipped by sea.
2. Oil supply
The outlook for oil supply is more complex.
The collapse in prices in 2020 has sucked investment out of the industry while practical issues — such as social distancing on oil rigs — has delayed drilling programmes.
Then there’s the US shale sector. Shale transformed the oil and gas industry and its growth put Opec on the back foot for much of the past five years.
But this relatively expensive source of supply has been hard hit by the crash in prices with US crude output falling from a record 12.3m b/d in 2019 to 11.3m b/d this year, according to the US Energy Information Administration.
Shale has stabilised in the second half of 2020, but the days of gangbuster growth are behind it for now. The EIA sees US supply slipping to 11.1m b/d in 2021.
However, one of the key variables for oil will be how shale and other producers respond if prices rise much above $50 a barrel — a level where most companies can cover their costs.
Globally, the IEA sees production outside of Opec rising by 500,000 b/d next year after falling 2.6m b/d this year.
“Whether oil prices can remain as high and keep these gains is still questionable,” said Bjornar Tonhaugen at Rystad Energy.
3. Opec and its allies
The mismatch between supply and demand puts a lot of weight on what Opec and allies such as Russia do.
They called off a month-long price war in April and agreed to cut almost 10 per cent of global oil production to rescue the market.
The deal was meant to taper, allowing countries to produce more as demand recovers. But a drawn-out crisis has left them stuck with more than 7m b/d of crude still offline. They are expected to meet again on January 4 to discuss adding back 500,000 b/d.
Tensions have risen within the group as they weigh renewed lockdowns against a desire to rebuild revenues.
The question of long-term demand is a cloud that hangs over the entire expanded Opec+ alliance, which has included Russia and other producers since 2016.
Fears of a renewed price war within the group are weighing on sentiment, analysts at RBC Capital Markets argue.
“Market rebalancing remains heavily dependent upon the output management of Opec+,” RBC said.
The biggest geopolitical shift in 2021 will probably come early for the oil market, as Donald Trump departs the White House. Mr Trump became heavily involved with Opec decisions, pressuring Saudi Arabia to raise or lower production in return for his support.
President-elect Joe Biden is expected to be less hands-on with the cartel, but he may end up being no less influential. The potential revival of the Iran nuclear deal could result in Tehran adding close to 2m b/d of crude back to the market if US sanctions ease.
Tensions in some of the weaker oil producers, in Africa, Latin America and other regions, will also be closely watched. All have been hard hit by the drop in oil prices, threatening political stability.
One of the worst sectors of the oil industry in 2020 was refining. Crude was helped by Opec+ group’s supply management, but refiners have fewer levers to pull when demand crashes.
That has meant low margins for much of the year. Permanent plant shutdowns are widely expected to accelerate in 2021, especially in Europe, with consumption patterns shifting east.
If enough plants close, however, that should ultimately boost margins for those left standing.
Source: David Sheppard, Energy Editor FT.com 29th Dec 2020
Additional Oil Market commentary & Market Data available from the BBC here: Market Data
The Office for National Statistics record the price of heating oil and publish monthly updates on the average delivered cost of a domestic delivery of 1000 litres of kerosene in the UK . The information held by the ONS is freely available online and can be found here: ONS Price of heating oil