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ANS hits post-COVID high
Markets shake off fears of US stimulus delays to focus on 2021 demand recovery
Steve Sutherlin Petroleum News
Despite a downward turn at the beginning of Christmas week, Alaska North Slope crude and Brent crude managed a nine-day streak priced above $50 per barrel, with ANS closing Dec. 22 at $50.56, down 95 cents and Brent closing at $50.08. West Texas Intermediate closed at $47.02, off 72 cents.
Markets were rattled as the week opened on winter solstice Monday Dec. 21 by a new strain of COVID-19 identified in the U.K. which launched new travel restrictions in Europe, including bans on travel from the U.K. The U.K. government imposed tighter restrictions in London and other cities, saying the new strain exhibited a 70% faster spread than earlier mutations.
ANS gapped down 2.4% to $51.51 Dec. 21, while Brent dropped 2.6% to $50.91 and WTI lost 2.8% to close at $47.74. The losses were the steepest since Nov. 6.
On Dec. 18, ANS had closed up 68 cents at $52.78, Brent closed 76 cents higher at $52.26 and WTI - having failed to break the $50 mark during the day’s trading - closed up 74 cents at $49.10. The post-COVID highs set on the day closed out a week of gains buoyed by vaccine approvals and federal stimulus announcements.
But by late on Dec. 22, already volatile trading for oil and other assets was further agitated by a sudden curveball from President Donald Trump which threatened to derail the carefully crafted bipartisan $900 billion coronavirus relief bill passed by Congress.
Trump said just as the bill was reaching his desk that he wanted stimulus checks of $2,000 per person instead of $600 and the elimination of “wasteful and unnecessary items,” despite his administration’s involvement in negotiating the bill.
Brent crude dipped as low as $49.27 in early trading Dec. 23 before staging a sharp recovery above $50.50 later in the day.
The recovery was bolstered by an Energy Information Administration report issued later in the morning that U.S. crude inventories fell by 562,000 barrels for the week ended Dec. 18. Brent moved above $51 at Petroleum News press time as Dec. 23 trading continued.
U.S. financial markets shook off stimulus uncertainty as well in early trading as House Speaker Nancy Pelosi said Democrats would organize a vote on increasing the amount of the stimulus checks.
Markets had a solid “wall of worry” to climb as traders eyed the prospects of a robust oil demand recovery in 2021 on expectations that the pandemic will finally unclasp its grip on the affairs of humanity.
Better times to come The view that COVID-19 vaccinations will affect a demand recovery sometime near the middle of 2021 is widely held by analysts worldwide.
Wood Mackenzie said it expects coronavirus related shutdowns to ease in the first quarter of 2021.
Wood Mac forecasts that world oil demand will increase 6.6 million barrels per day year-on-year in 2021, reversing approximately two-thirds of a 10 million bpd collapse in 2020, it said in a Dec. 18 release.
“Already, China has seen oil demand strengthen this quarter to levels higher than the same period of 2019,” Wood Mac said.
“The turnaround in China’s oil demand points to the first sign of what will soon be a reality: brisk global year-on-year demand growth in 2021,” it said. “That trend is going to tighten the supply and demand balance by the second half of 2021 and support oil prices.”
Wood Mac analyst Simon Flowers said in a Dec. 11 report that restraint by the Organization of the Petroleum Exporting Countries and allied nations in 2021 will nurse the market back into balance.
“We think Brent will move above US$55/bbl by end 2021,” he said.
But Flowers said risks loom on the horizon; delays in controlling the pandemic could stall demand recovery.
Iran looms on the horizon as a wild card for 2021, he said.
“Iran may be tempted in coming months to increase exports from today’s minimal levels to test the geopolitics, adding to the challenges of OPEC+,” Flowers said. “Were sanctions to be lifted - unlikely until 2022 at the earliest - up to 1 million b/d of crude could return to market within months.”
Wood Mac said oil markets will be permanently affected by the pandemic.
“Even by 2030, we think oil demand will be significantly below the level projected in our forecasts from 2019,” it said. “There will be economic ‘scarring’ from the pandemic: the world is in effect losing more than a year of growth.”
But the consultancy expects oil demand to resume its upward trajectory, at least for the rest of the decade.
“Predictions that 2019 would turn out to be the peak for world oil demand seem unlikely to be fulfilled.” Wood Mac said.
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