29 December 2020 - 20:51
  • News Code: 311389
The Downfall

TEHRAN (Shana) -- The year 2020 is coming to an end; the year in which coronavirus overshadowed the oil market, the martyrdom of General Soleimani brought the oil price to the level of $72 per barrel, the Saudi-Russian price war led to the Black Monday for West Texas Intermediate with a price of minus $37/b, to name a few. The only proper measure taken by oil market players in the year was the historic coalition of oil producers in the Organization of the Petroleum Exporting Countries (OPEC) and their allies, a grouping called OPEC+, to slash output by 9.7 million barrels per day. 

Martyrdom of General Soleimani
Brent crude, which started 2020 at $66 a barrel, rose 4.5 percent on the second day of the year after news of the killing of General Qassem Soleimani, commander of the Revolutionary Guards' Quds Force, and Abu Mahdi al-Mohandes, deputy chief of staff of Hashd al-Shabi, got out. It crossed the $71 per barrel level for hours. The rise in oil prices also continued to close to $72 after Iran's missile response to the US terrorist attack and fears of a military confrontation between Tehran and Washington in January. This was the highest oil price in 2020.
Failure of March Talks
The 178th meeting of the Organization of the Petroleum Exporting Countries (OPEC) on March 5 put on the table a proposal to reduce 1.5 million barrels of crude oil output to be implemented subject to the agreement of OPEC+, but on March 6, the proposal was blocked by Russia. In addition to opposing OPEC's proposal, the Russian-led OPEC+ said the agreement to cut production by 1.7 million barrels was valid only until the end of March, after which there would be no commitment to reduce oil production: The outbreak of a war. Saudi Arabia, the United Arab Emirates and Russia announced their readiness to increase oil production from 500,000 barrels to 2.5 million barrels by the end of March.
Saudi-Russian War
Following failure of the March talks, Saudi Arabia reduced its crude oil export prices, and Iraq and Kuwait followed suit and reduced their oil prices. The move sparked a price war between Saudi Arabia and Russia, bringing an oversupply to the oil market in March. Saudi oil customers sought to increase their oil purchases by up to 50 percent. Under these circumstances, the price of tanker fares increased sharply due to the reservation of giant tankers to transport crude oil shipments from Saudi Arabia.
Oil Price Fall
The crude oil price tailspin by more than $20 in the third month of the year took place due to the insane behavior of Russia and Saudi Arabia. Brent, West Texas Intermediate and OPEC oil prices, which started March at $51.90, $46.75 and $51.65, respectively, ended the month with a global coronavirus pandemic aggravated by Saudi and Russian price war, and fell to $27.28, $21.34 and $21.66 per barrel, respectively. With oil prices reaching these figures, it was decided that OPEC and non-OPEC producers hold an extraordinary meeting.
The Historic April Meeting
The OPEC+ extraordinary meeting took place after many struggles and after talks between US President Donald Trump and Russian President Vladimir Putin. The oil and energy ministers of the 23 OPEC+ member states sat in front of the cameras for the first time on April 9 and discussed via webinar. The meeting lasted more than 10 hours and failed despite the agreement of 22 OPEC+ member states to offer production cuts in three phases, of which 10 million were set for the first phase, due to Mexico's opposition to the allocation of production cuts. The Saudi energy minister insisted on the participation of all OPEC and non-OPEC members in response to proposals calling for Mexico to be expelled from the group.
American Vow
The oil and energy ministers of OPEC+ once again sat in front of the cameras on April 12 after the talks between Saudi Arabia and Mexico and after the favorable vow of the US President to compensate for part of the reduction in Mexican production, to finalize the proposals of the April 9 meeting. The meeting did not last long given the smile of the Mexican Minister of Energy. The 23 OPEC and non-OPEC member countries agreed to reduce production in three phases, 9.7 million barrels for two months, 7.7 million barrels for 6 months and 5.8 million barrels for one year and four months, respectively. The deadline for this agreement was set for April 30, 2022.
Black Monday
April 20, eight days after the historic OPEC+ deal, and while the world was still smiling at the deal, is marked as the Black Monday; in an unprecedented turn of events, crude oil prices plummeted to negative prices. The WTI futures price index with a maturity of one month for May 2020 delivery on the New York Stock Exchange (NIMEX), which opened at a price of about $18 per barrel, closed at a negative price of $37.63 per barrel. This was the first time in the history of the New York Stock Exchange that the price of oil futures contracts became negative. The reason for the fall in oil futures was the excess supply in the oil market and the lack of storage capacity, but more precisely it should be attributed to the existing limits on futures market before the expiration date.
Unprecedented Figures 
2020 is a year full of unprecedented and astonishing numbers. Commercial oil stocks, Saudi oil production and oil demand also hit record highs this year. The level of commercial oil storage in the member countries of the Organization for Economic Cooperation and Development (OECD) in May 2020 reached a record 3,221 million barrels, the level of oil storage (commercial and strategic) in non-OECD countries at the same time reached 3,671 million barrels and floating oil reserves reached 252 million barrels in April 2020. Another surprising number for 2020 is Saudi oil production. The country's oil production in April, according to domestic sources, reached an unprecedented 12.4 million barrels per day. Oil demand also fell sharply in 2020. Oil demand fell by an average of more than 9 million barrels per day, according to the International Energy Agency (IEA), the US Energy Information Administration (EIA) and the Organization of the Petroleum Exporting Countries (OPEC).
Discovery of Oil/Gas Fields
Saudi Arabia and the UAE, two OPEC members, announced the discovery of new oil and gas fields in 2020; news that can change global energy equations. Saudi Arabia announced on August 30 that Saudi state oil company, Aramco, had discovered two new oil and gas fields in the north of the country. The amount of oil extraction from "Abraq Al-Talul" field located in the southeast of the northern city of "Arar" was estimated at 3,189 barrels of light Arabic crude oil per day, along with which 3.5 million cubic feet of natural gas is produced. Natural gas from the Hazba al-Hijra gas field in the Al-Jawf region is estimated at 16 million cubic feet per day, with which 1,944 barrels of gas condensate is produced daily. Also, the UAE on November 4 discovered new oil and gas fields in the country. The new discoveries include 7 billion barrels of oil and 58 trillion cubic feet of gas.
Libyan Crisis
What happened to Libya should also be considered one of the most important events of 2020. The country's oil production, which was disrupted in early 2020 following the seizure of eastern and central oil terminals by forces loyal to Khalifa Haftar, the leader of the Eastern Libyan Armed Forces, reached nearly zero, its lowest level since 2011, but according to the latest report by OPEC, its oil exports have reached 1,108,000 barrels and is close to a 1,220,000 barrels per day, which is close to the country’s production levels prior to closure of its production centers. The CEO of the Libyan National Oil Company announced that his country would not join the quota system of OPEC until oil production is stabilized.
Purgatory of uncertainty
The year 2020 is coming to an end with all its ups and downs, and the year 2021 will begin in the purgatory of uncertainty for demand, supply and price of oil, a market that has never been subject to such degree of uncertainty. Oil demand in 2021 will have two modes: either the current trend and the decline in oil demand due to the third wave of the outbreak of the coronavirus will continue, or with general vaccination and return of economic activities, it will amplify. The difference between the two is at least 6 million barrels per day. The situation is not better in the supply sector either. The continued increase in Libyan oil production, the strengthening of US production and the possibility of the return of Iranian oil have also put this sector in a state of uncertainty. Add to this the recent OPEC+ decision to gradually increase the group’s oil output on a monthly basis based on market assessments and uncertainty about OPEC oil production. Predicting oil prices in 2021 is a difficult task. It is safe to say that oil market participants in 2021 are in a state of great confusion, and forecasting oil prices next year is more like a Nostradamus prediction than a simple forecast.

By Roya Khaleghi
Translated by Abbas Hajihashemi 
 

News Code 311389

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