Ministers from the world’s largest fossil-fuel producing nations are set to meet virtually on Monday to discuss what the future holds for the global oil market in 2021. After a turbulent year which saw prices crash to their lowest level in more than 20 years in so-called “Black April”, news of more lax lockdowns and a trilogy of high-profile Covid-19 vaccines almost ready to roll out offers a glimpse of the light at the end of the tunnel for the industry.
Earlier this week, oil prices climbed to their highest point since April, after battling a slump at the beginning of November when crude slid to just $33.64 a barrel. The disappointing figures did not last the month, however, with prices beginning to creep back up in recent weeks.
On Wednesday, Brent crude rose 47 cents – 1% – to $48.33 a barrel, although by Sunday evening it had settled at around $48.18. Despite the minor slip backwards, it was trading at $37.94 a barrel less than a month ago on 30 October, but have since been buoyed by the success of the latest vaccine trials and hopes that travel restrictions around the world may loosen over the Christmas period to allow people to visit their families.
West Texas Intermediate crude gained 80 cents – 1.8% – reaching $45.71 per barrel in the early hours of Wednesday, before sliding slightly to $45.52 on Sunday night. Prices have surged from a low point of just $35.79 at the start of the month, as lockdown across the UK and mounting infection cases in the USA dampened appetite for travel.
A return to the $50 a barrel mark before the end of the year is finally in sight, but part of reason why oil has managed to recuperate in recent months is due to the combined effort of OPEC nations to cut production rates. Back in April, they collaboratively agreed to the largest single output cut in history – rolling back production by 9.7 million barrels a day – to try to balance supply and demand.
In August, this was scaled back to 7.7 million less barrels, but analysts are expecting OPEC leaders to roll over the current plans into 2021 in light of the fact that mass vaccination is still likely to be some time away. CNBC reported that a planned 2 million bpd January production ramp-up looks “set to be delayed, according to market consensus, with analysts differing on whether that would be for three months or six months”.
Ravindra Rao, Head of Commodity Research at Kotak Securities, told MoneyControl that oil is “running too hot” ahead of the OPEC meeting:
“OPEC and allies are largely expected to extend the current production of about 7.7 million barrels per day for an additional three to six months. The current deal calls for curtailment in production cuts to 5.8 million bpd in January 2021.
“The recent rise in price indicates that market players have factored in that OPEC may defer further production hike so unless there is any major announcement, crude oil could become vulnerable to some correction. With a sharp rise in crude prices and signs of progress on the vaccine front, OPEC is unlikely to take aggressive measures.
“Additionally, there are other challenges in the form of rising virus cases and easing euphoria about vaccine amid efficacy concerns as well as logistical challenges”.
On the other hand, US banking giant Goldman Sachs believes that the oil market is “ripe for a comeback” in 2021 as demand for natural resources returns with increased travel and manufacturing, although analysts have warned that nothing is guaranteed:
“As another Opec+ meeting nears, uncertainty on the group’s decision is once again rising. Beyond the outcome of another quota decision, however, there are renewed concerns about the future of the organisation”.