Fourth quarter 2020

• Published date: 01 January 2021
• DOI: http://doi.org/10.1111/oet.12834
• Date: 01 January 2021

EDITORIAL

Fourth quarter 2020

Crude prices rose through the final quarter of 2020 due

to steady progress in the development of Covid-19 vac-

cines, and fairly tight compliance with OPEC-plus cuts,

although rising Covid-19 case numbers in the United

States and Europe capped sentiment throughout the

period.

October began with a slump in prices, which left

December Brent at $39.27/bbl on Friday 2nd October—

the lowest since June—largely due to US President

Donald Trump and his wife contracting the corona virus,

combined with a weaker US jobs report. The following

week, prices rebounded as Hurricane Delta led to shut-

ins in the US Gulf of Mexico, which reduced the region's

2 mn bpd production by almost 80%. Despite this, US

crude stocks climbed 500 000 bbl to 493 mn bbl mid-

week, around 12% above the 5-year average, which

capped the rally. The threat of a strike in Norway, which

could have removed up to 1 mn bpd from the market,

supported prices later in the week.

Then on Monday 12th, prices fell back again, with

supply rapidly returning from the US Gulf after Hurri-

cane Delta, while the risk of strike action in Norway

receded. In addition, production restarted at Libya's larg-

est oilfield, Sharara, bringing exports there up to 300 000

bpd from zero only a few weeks earlier. There was a

slight recovery in prices on October 14th on news of

improved OPEC-plus quota compliance and rising Chi-

nese crude demand. But rising coronavirus cases, espe-

cially in Europe and the United States, then began to

weigh more heavily on the market, sending prices lower

over the following days, despite a slight rise in US crude

stocks and talk of another US stimulus package. The

weakness prompted the OPEC-plus group to suggest that

it may extend its current output cuts beyond the end of

the year, when they had been due to ease further.

In the third week of October, prices were initially fairly

steady as renewed optimism surrounding US stimulus

negotiations partially balanced deteriorating coronavirus-

hit demand outlooks, including the announcement in Ire-

land of a return to full lockdown on the 20th. But on the

21st, US gasoline inventories showed a surprise build as

demand fell to levels close to that in June at the end of the

first wave, indicating the growing impact of the virus on

demand in some US states, and helping send prices lower.

There was a brief respite on the 22nd following comments

from Russia's President Putin that output cuts may be

extended, alongside fresh hopes of a US stimulus bill and

stronger-than-expected US jobs data. But the following day,

crude oil prices dropped again after Libya said it planned to

ramp up crude production to 1mn bpd within 4 weeks,

leaving front-month (now January) Brent at just over $42/

bbl at the close on Friday 23rd.

The following Monday, crude prices continued to

slide as surging coronavirus cases in both Europe and the

Americas raised fears of further lockdowns, which would,

in turn, reduce economic activity and the winter crude

demand outlook. The 27th saw a slight respite as Gulf of

Mexico operators shut in roughly half their production

ahead of Hurricane Zeta—the month's second major hur-

ricane. But over the following days, extended Covid-19

restrictions were announced in Spain, Germany and

Italy, while France signaled a move into full lockdown

again, which helped push Brent below $38/bbl at the end

of the month.

On Monday 2nd November January Brent rose from

just under $38/bbl to almost $39/bbl, as prices gained

support from indications that OPEC-plus would roll over

on-going production cuts into 2021, rather than reducing

them as planned. There was also support from antici-

pated progress on a fiscal stimulus package after the US

presidential election. By 4th November, January Brent

had risen to $41.23/bbl and December WTI to $39.15/bbl.

Crude futures then fell back over the following 2 days as

pandemic-related demand growth concerns returned to

the fore.

The second week of November began with a sharp

rally on news from Pfizer and BioNTech that their corona-

virus vaccine had proved to be more than 90% effective in

trials. The news immediately led analysts to begin revising

demand forecasts up, and by the close on Wednesday 11th

November, January Brent had reached $43.80/bbl, its

highest since early September. Market contango also

shallowed as the prompt market gained strength relative

to forward periods. Prices then fell back slightly, as coro-

navirus cases kept rising in Europe and the United States,

along with some market concern over the smooth transi-

tion of power in the United States. By the close on Friday

13th, December WTI crude was just above $40/bbl, while

January Brent stood at $42.78/bbl.

The third week of November saw prices rise on

increasing confidence that vaccinations would soon begin

to tackle the pandemic. On Monday 16th November,

8EDITORIAL