Oil Price Outlook 2021

January 2021

Take a moment to sit back and enjoy some much-needed clarity on why oil prices were so volatile in 2020, what to watch out for in 2021 and how we can help you control your fuel oil costs.

2020…don’t look back in anger…I heard you say…

Oil prices were wild in 2020; $70 at the beginning of 2020, to below $20 in April and then finishing the year a little over $50 a barrel.

How 2020 unfolded…


Sheikh (OPEC) vs Shale (US)

Since 2014, a game of ‘Sheikh (OPEC) vs Shale (US)’ has been playing out; OPEC enacting supply cuts to try to hold up the oil price and the US increasing shale production at an astonishing rate with manic drilling.

Opec, the Organisation of Oil Exporting Countries, is an intergovernmental organisation of 13 oil producing countries. The defacto leader of Opec is Saudi Arabia…


OPEC and Russia – an unlikely partnership…

Opec and Russia, developed a pact in 2016 to enact supply cuts to support prices in response to the fast-increasing supply from US shale production.


Oil price war – the 8 days that shook the oil market – and the world…

In April 2020, we saw a short but highly damaging price war between Opec and Russia. This was effectively due to a collapse in the supply agreement between Opec and Russia.

  • Saudi Arabia wanted deeper and more prolonged cuts to counter the effect of the coronavirus on demand.
  • Russia thought that these cuts would enable rival US production to spiral ever higher. Russia had bristled as US shale production spiralled ever higher thanks to its price-supportive cuts with Opec. Rosneft boss, close confidant of Putin, long opposed the cuts with Opec.


Coronavirus provided Russia with an opportunity to strike US production.

Opec and Russia entered into a fierce battle for market share from April 1st.

Russia’s energy minister told journalists that they would be free to pump at will from April 1st. In response, Saudi Arabia saw this as a provocation and, almost immediately, launched a plan to ramp up production.

Saudi Aramco slashed the price of its crude oil by as much as $8 a barrel; targeting buyers in North East Europe with discounts – a crucial market for Russia.

Saudi’s objective was to cause the largest and fastest oil price fall possible.

Brent crude fell to below $35.

Then, the International Energy Agency, predicted oil demand would contract for the first time since 2009; a reminder that the market was not just facing a supply shock, but an even bigger demand cut too.

Russia stated it could withstand prices of $25-30 a barrel for the next 6-10 years.

So, Saudi hit back with a double whammy; lifting supplies by a quarter to 12.3m barrels per day then a day later issued a directive to expand output capacity to 13m barrels per day.

Demand side problems were mounting just as this supply-side war escalated.

At this pricing-level, the US Shale industry were forced to retreat without the financial crutches of Wall Street.

At this stage, Trump did not support the shale industry; pleased about how low gasoline prices were ahead of the election.

On 12th April, Saudi Arabia ended the oil price war, making the biggest oil production cuts in history; equivalent to 10% of global supply, 9.7 million barrels per day.

This represented twice the size of the cuts made during the global financial crisis.


Coronavirus – the oil industry faced its gravest crisis of the past 100 years.

Despite the end of the price war, on 20th April oil prices hit rock bottom, due to the demand shock.

Such was the scale of the demand collapse due to Covid.

Opec and Russia got a big poke in the eye, they could not set a floor under prices by limiting supply as they had done in the past.

Saudi had torched its long-cultivated image as a reliable steward of the oil market in 8 days.


Oil Prices in the US went negative – for the first time in history

The US oil price index West Texas Intermediate went negative for the first time in history; down to -$40; sellers were effectively paying buyers to take the oil contracts for delivery in May off their hands before being forced to take physical delivery when the contract for May expired.

Sellers without physical storage in that part of the world, Cushing, were desperate.

Buyers with physical storage in Cushing seemingly cashed in.

Other ‘forward contracts’ for oil deliveries in May and beyond, in other parts of the world, also came under intense pressure.


The global economy was in deep distress

This was the markets way of saying that the global economy was in deep distress; the market knew that companies and economies would not require much oil anytime soon.

This imposed pain on oil producers; many of which were loaded up with debt that they would struggle to pay back.


Oil majors pushed into renewables

European majors started to seriously push into renewables, US rivals still pinned hopes on an oil-fuelled future.

BP notably committed to net zero emissions by 2050.


Vaccines announced

In quarter 4, the oil pricing level increased with each new vaccine announcement. With each announcement, confidence grew that the world would start moving again. The financial markets reacted quickly before the physical balancing of supply and demand.

Towards the end of 2020, there was a recovery back to $50.

Never Miss a beat

Get our latest fuel articles straight to your inbox

So, what to watch in 2021…

Early January, oil prices climbed above $50 a barrel with a helping hand from Saudi Arabia in the form of a jaw-dropping, hefty production cut.

But any uptick will be tempered by investors keen to avoid a return to capital-burning levels of the past and anchored by forecasts of limited and uncertain increase in demand.


1# Demand

Despite demand forecasted to rise at the fastest rate on record in 2021, as the world starts moving again, demand is expected to be well below pre-pandemic levels.

We would expect this to anchor down the oil price.

The International Energy Agency predicts consumption is set to rise by almost 6m barrels a day but only to 97m barrels per day – well below, in oil terms, pre-pandemic record of 100m barrels per day.

Demand is likely to be 5 million barrels a day below where it would have been without the coronavirus.

To put that into perspective, the 2009 financial crisis hit demand by just over 1 million barrels a day.

This 5 million barrels a day demand losses comes in three main strands

  1. Jet Fuel being the biggest, representing approximately 2.5 million barrels a day, half of the demand loss.
  2. Road fuel, Gasoline and Diesel will fare better but still expected to be restricted by how fast and wide the vaccines become available to people. The International Energy Agency expect demand to only reach up to 97-99% of pre-pandemic levels.
  3. Economic fallout, ranging from manufacturing to shipping.

All eyes will be on the UN Climate Change Conference in 2021 in Glasgow in November, where it is expected parties will agree to emit less, transition away from fossil fuels and towards net zero emissions.

This transition to greener and cleaner energies is likely to be supported by new US President, Joe Biden.


2# Supply

The outlook for supply is complex. Investment has been sucked out of the industry due to collapsing prices in 2020. Practical issues, such as social distancing on oil rigs, has also delayed drilling programmes.

There are 4 key things to watch on the supply side in 2021…that will affect your fuel oil prices:

i) US Shale

Over the last 5 years, US Shale has been a game changer, creating competion between Sheikh (OPEC) vs Shale (US), then ‘OPEC+’ (OPEC & Russia) vs Shale (US).

But it has been hit hard by the oil price crash falling from 12.3 million barrels per day to 11.3 million barrels per day and is expected to slide further down to 11.1 million barrels per day, according to the US Energy Information Administration.

We will be watching how much oil the industry pumps out closely for our customers.

At prices of over $50 a barrel, a pricing level that seemingly enables them to cover their costs, it will be interesting to see… We certainly do not expect fast growth like we have seen in the past anytime soon.

ii) Opec+

OPEC+ (OPEC and Russia) will be weighing up what best to do now there is a mismatch between supply and demand.

The deal to cut almost 10% of global production was meant to taper as demand recovered. It has not recovered at a rate that they expected.

Tensions between the unlikely partners will be running high.

Risk of another price weigh on sentiment.

The rebalancing remains heavily dependent on the output management of OPEC+.

iii) Geopolitics

US President elect, Joe Biden, is expected to be less involved with OPEC than Trump but, perhaps, no less influential.

The revival of the Iran deal could see 2m barrels per day added to global supply.

Weaker oil producing countries burdened with debt may become politically unstable and produce less.

iv) Refining

Refiners were hit hard by the oil price crash.

Permanent plant shutdowns are expected to accelerate into 2021.

Refiners simply have few levers to pull when demand crashes and many more may be forced to shutdown.


We will be watching these key underlying factors affecting the oil prices throughout 2021 to help our customers:

  • understand the price risk ahead of them,
  • make the best-informed decisions and to
  • control costs.

Please see 7 ways to control business fuel costs in 2021 for 7 effective ways to take back control of fuel oil costs in 2021.

Never Miss a beat. Get Emissions reduction & Fuel buying tips straight to your inbox!

Learn More

Book a callback & learn how we can help