Global crude oil supply has taken a hit because of the Covid-19 pandemic, with production trailing by around 10 per cent in 2020 compared to the same month a year ago. The prolonged impact of the Covid-19 pandemic is evident from the International Energy Agency’s move to significantly lower its forecast for 2020. The average production for the period between April and September 2020 stood at 91.58 million barrels per day (mb/d). This is close to the revised IEA forecast of production of 91.7 mb/d for the current year.
In January 2020, the IEA has forecast oil production growth to accelerate to 1.2 mb/d (estimated production was 101 mb/d for 2020). This was expected to be supported partly by prices remaining relatively subdued, higher global GDP growth than last year and progress in settling trade disputes between China and the US.
But this forecast was turned upside down by April 2020 when the IEA had estimated a 10 per cent contraction in crude oil production on the back of a demand slump as the number of Covid-19 cases spread. The IEA has estimated that global capital expenditure by exploration and production companies in 2020 will drop by about 32 per cent versus 2019 to $335 billion, the lowest level for 13 years.
According to the IEA’s latest report, the overall demand estimate for 2020 is also pegged lower at 91.7 mb/d (down 8.4 mb/d versus 2019). The demand estimate for 2021 is also muted at 97.2 mb/d, though it is up 5.5 mb/d year-on-year.
The fall in demand for crude oil is reflected in the price of Brent being pulled down. Brent closed at $ 40.95 a barrel towards September-end, down from $58.16 a barrel in January-end this year.
According to the latest estimates from the World Bank, oil prices are expected to average $44 per barrel in 2021, only slightly higher than the estimated price of $41 per barrel in 2020. “Demand is expected to rise only slowly, as tourism and travel continue to be held back by health concerns and as global economic activity is anticipated to return to pre-pandemic levels only in the year after next,” the World Bank said in a statement issued last week.
Sharing his views on the variations in crude oil price, Saudi Arabia’s Energy Minister, Abdulaziz bin Salman, said: “The 10 years of the late 1980s to the 1990s were the so-called ‘incubator’ of higher oil prices. My theorem is that low oil prices are followed by higher oil prices and high oil prices by low oil prices. It’s cyclical.”