Oil Production Gets a Shot
After the appalling year for the oil industry brought about by the worldwide pandemic caused by COVID-19, experts are cautiously optimistic as they continue to roll through 2021. With the onslaught of vaccines and the desire to get back to normal life, all signs indicate an optimist attitude for the oil industry.
2020 was nothing short of bleak for oil production companies around the globe. With many countries locked down because of the pandemic, no one was going anywhere, and therefore there was no need for oil. Commuting, traveling, and going out on the weekends all take fuel to get you there, but the pandemic halted the world in their tracks.
CNBC recently reported OPEC’s findings. “The group said world oil demand growth in 2020 declined by 9.8 million barrels per day year on year to average 90 million barrels per day.”
With so much less oil needed, the oil companies eased up on their production in order to avoid a glut. OPEC + cut oil production to an unprecedented level in order to level the playing field when the world shut down, and they are slowly trying to figure out how to get back to pre-pandemic levels.
A Look at 2021
As recently as a few weeks ago, oil futures were on very shaky ground, and experts were not sure how many companies could rebound in 2021. With the Covid variants popping up around the globe, and some countries instituting new lockdown measures, there were many uncertainties at play.
But in the United States, behind the hard work and optimism of the Biden Administration, the White House is pushing vaccinations, and also ensuring that Americans have a relief package that can help them get moving. The US consumes so much oil, so if their economy is getting back on track, then the oil coffers will begin to be used.
Newsmax reported, "Demand for risky assets such as oil continues to be buoyed by the White House relief package and an almost daily flow of optimistic vaccine headlines," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.
With this news of vaccinations and the age of eligible recipients creeping lower every day, Americans can finally see the light at the end of the tunnel. And for them, this means the ability to leave their homes and get out and travel more safely. Oil is the key to all of this traveling.
JPMorgan expects U.S. oil output to average 11.36 million barrels per day this year compared with 11.32 million bpd in 2020. With such a small percentage of increase, this improvement is negligible at best. But in the shaky, slow-going pandemic world, the trajectory is positive, despite the snail’s pace.
The Direction for Oil Companies
Although things are moving in the right direction, everything is not perfect yet. CNBC explains that “Uncertainties remain high, from now on, with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior. Oil futures will mimic the continued control or lack of control for COVID-19.”
But World Oil is optimistic. They maintain that “Over the course of 2021, about 60% of the demand lost last year should be recovered, according to the agency. World consumption will increase this year by 5.4 million barrels a day to average 96.4 million a day.” This increase will help put the oil world back on more solid footing.
OPEC also is assuming a healthy recovery for normal human activities, which will definitely affect the production and price of oil. These predictions imply the expectations of an increased labor market, more industrial production, and even high vehicle sales than in the height of the pandemic last year. People’s personal habits should also factor in. For many people who have been locked down for a year, 2021 should bring a resurgence of travel, whether it be far-flung destinations or even more local places. All will require more oil use.
Even though the story seems to change daily, with mutations of the virus in play and the optimism of the vaccine progression, the oil industry can expect a positive outcome by the end of 2021. Commuters are ready to get back on the road, and vacationers are ready to get back in the air, and that all adds up to more need for oil.