Brent crude oil prices averaged $73 per barrel globally in June 2021, up to $5 per barrel from May's average. According to the US Energy Information Administration's Short-Term Energy Outlook issued on July 7, 2021, they'll average $72/b in the second half of 2021 and $67/b in 2022. Oil prices have been impacted significantly by the COVID-19 epidemic. Brent crude oil prices began off well in 2020, averaging $64/b on January 2. However, they plunged in the second quarter, ending at approximately $9/b in April 2020, when the price of West Texas Intermediate (WTI) at Cushing, Oklahoma, hit an all-time low of roughly -$37/b.
Brent prices averaged above $40 per barrel by June 2020, rising to $50 per barrel by the end of the year. As COVID-19 immunization rates have grown and economic activity has started up, prices have risen to $73/b in June 2021 owing to rising oil needs. The rise in price is also due to supply constraints imposed by the Organization of Petroleum Exporting Nations (OPEC) and its member countries. Due to lower demand during the epidemic, OPEC curtailed oil output in 2020. OPEC announced at its most recent meeting in June 2021 that it would gradually restore 2 million barrels per day (b/d) to the market, and it has been progressively raising its output in 2021.
Brent vs. WTI
The benchmarks for other oil prices are two grades of crude oil. These are the Cushing WTI and the Brent North Sea. The benchmark for US oil pricing is WTI at Cushing, which comes from the United States. Brent oil is produced in the North Sea and serves as a benchmark for worldwide oil pricing. WTI prices are expected to average $66/b in 2021 and $63/b in 2022, according to the EIA.
Four Reasons for Today's Oil Price Volatility
Oil prices used to fluctuate according to a regular seasonal pattern. They peak in the spring as oil speculators expect a surge in summer holiday driving. Prices decline in the fall and winter when demand peaks. Because of unanticipated fluctuations in the elements that impact oil prices, oil prices have become volatile. Oil demand plummeted as a result of the coronavirus epidemic. Rising US oil output, OPEC's decreased power, and the stronger currency have all contributed to the decline in oil prices. For those who are starting in the industry now, it is better to understand how CFDs work in the oil industry since it is the most beneficial in the current occasion, due to the price volatility.
Global Demand Is Declining - In 2020, the EIA forecasts that worldwide oil and liquid fuels consumption will be 92.3 million b/d. This is down 8.6 million b/d from the previous year. Demand is expected to rise by 5.3 million b/d in 2021 and another 3.7 million b/d in 2022, according to the company.
Increased Oil Production in the United States - The availability of shale oil and alternative fuels like ethanol in the United States has grown. They gradually expanded supply, keeping prices high enough to cover exploration expenditures. Many shale oil companies improved their extraction efficiency. They devised methods to keep wells open, avoiding the expense of capping them. This ramp-up began in 2015 and has had an impact on supplies since then. The United States overtook Saudi Arabia as the world's top oil production in August 2018. In September 2019, crude oil output in the United States reached a new high of 12.1 million barrels per day (b/d). The United States exported more oil than it imported for the first time since 1973. In March 2021, US crude oil production averaged 11.2 million barrels per day, up 1.4 million barrels per day from February.
According to the EIA, crude oil output in the United States increased to 10.9 million b/d in March and almost 11.0 million b/d in April. In 2022, crude oil output in the United States is expected to average 11.9 million barrels per day.
OPEC's Power Is Weakening - Although US shale producers have grown in power, they do not function as a cartel like OPEC. OPEC has not decreased supply sufficiently to put a floor under prices in order to preserve market share. Saudi Arabia, as the leader of OPEC, wants higher oil prices because it is the source of government funding. However, it must balance this with the loss of market share to American and Russian firms.
Sunni-led Saudi Arabia also does not want to lose market share to Shiite-led Iran, which is its archrival. The 2015 nuclear peace accord removed economic restrictions imposed in 2010, allowing Saudi Arabia's main competitor to resume oil exports in 2016. When President Donald Trump reimposed sanctions in 2018, that stream dried up.
Increased Dollar Value - Since 2014, foreign currency dealers have been pushing up the dollar's value. In reaction to the Greek debt crisis and Brexit, the dollar's value increased by 30% between 2013 and 2016. In reaction to the coronavirus pandemic, it increased by 8.4% between March 3 and March 23, 2020. All oil trades are settled in US dollars. The majority of oil-exporting countries have their currencies pegged to the US dollar. As a result, a 25% increase in the dollar cancels out a 25% reduction in oil prices. The US dollar remains strong due to global economic uncertainties.
Forecasts for oil prices in 2025 and 2050
Brent crude oil's nominal price is expected to climb to $66 per barrel by 2025, according to the EIA. Brent prices are expected to reach $89 per barrel by 2030, owing to increased global demand. Prices are expected to reach $132/b by 2040. By then, the low-cost oil sources will have been depleted, making oil extraction more expensive. According to the EIA's Annual Energy Outlook, oil prices will reach $185 per barrel by 2050.
The EIA predicts a flattening of petroleum consumption as utilities shift to natural gas and renewable energy. It also predicts that the economy expands at a rate of about 2% per year, while energy consumption falls by 0.4 percent per year. Other potential situations are also predicted by the EIA.
Is it Possible for Oil to Reach $200 Per Barrel?
There are scenarios that may push oil prices above $200 per barrel, despite the fact that it appears implausible right now. If the cost of producing oil falls and it drives out alternative energy sources, the EIA predicts Brent oil prices of $185 per barrel in 2050, but economic conditions might drive the price much higher.
Oil prices hit a record high of about $133 per barrel in July 2008. In December, they fell to approximately $40/b before rebounding to $123/b in April 2011. Previously, the Organization for Economic Cooperation and Development (OECD) predicted that Brent oil might reach $270 per barrel. Its forecast was predicated on rapidly rising demand from China and other emerging economies. Carbon taxes have been scoffed at as a means of combating climate change. Critics argue that raising oil prices too high would be a regressive tax on the poor.
High oil costs, according to the OECD, lead to "demand destruction." People's buying habits alter if high costs persist for a long time. Following the 1979 oil shock, demand was destroyed. For years, oil prices have been gradually declining. When supply finally caught up with demand, they ultimately collapsed. Oil at $200 a barrel may sound disastrous to the American way of life, but Europeans have been paying high prices for years due to hefty taxes. People will find methods to cope with rising oil costs as long as they have time to adjust.
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