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How High Will Oil Prices Go This Year?

How High Will Oil Prices Go This Year? thumbnail

This week we hit some milestones in the year-long recovery from the oil demand crash of 2020. West Texas Intermediate, (WTI) hit and moved past the $55.00 level, and Brent moved closer to $60. These are some important psychological barriers for the market, and if sustained, as we expect they will be, will push prices higher.

What happened?

The API announced a significant draw of ~4.3 mm barrels in crude stocks yesterday when a modest build was expected. Moves lower in gasoline and distillate stocks bolstered this price move, as it suggested refineries were cranking out product to meet present and anticipated demand.

In recent weeks oil prices had been resistant to adverse data (inventory builds of crude and refined products) and had continued to inch higher. The market’s relief at this confirmation of demand pushed prices for WTI through that critical $55.00 threshold.

If the EIA confirms this move today, (these reports are sometimes contradictory), we expect another push higher for both crudes, WTI and Brent. Particularly if the confirmation is of significant proportions, like 8-10 mm barrels. Continued price advances in crude will soon reverse the sluggishness we have seen in the oil equities market. Oil equities prices are typically off 15-20% from recent highs in an apparent disconnect from the recent strength in the underlying data regarding oil.

Crude stocks are falling into the 5-year range

Last week’s ~9.9 mm bbl draw moved the supply graph back into the 5-year average for the first time since mid-2020. This removes another psychological barrier for the continued rise in crude prices, as the market will now begin to shift its concern from inventory overhang to worrying about secure supplies. I discussed this in detail in an OilPrice article last month.

Related: Will U.S. Shale Finally Reward Shareholders?

The EIA also noted an increase in refinery throughput for the previous week, which is not something you expect this time of year. That said, we are still off about 2-mm BOPD from a year ago. This increase is bullish for prices as it implies rising demand at the retail level.

Crude Oil

 

EIA-WPSR

U.S. Production is starting to fall

Crude oil production thanks to Drilled but Uncompleted, (DUC’s) withdrawal has levitated around 11.0 mm BOEPD for the past month or so. This, in spite of the level of new drilling, (although on the increase), still not being at a level that will totally offset field decline rates, (6-40% per annum). Domestic crude production is down 2.3 mm BOEPD from its all-time high set in March of 2020, at 13.1 mm BOEPD.

This week the EIA reported a modest decline of 100K BOEPD to 10.9 mm BOEPD. Taking place in the lower 48, as noted by the EIA report, it’s not a stretch to connect this decline to falling shale production. We will have an additional guidepost when the EIA publishes its Drilling Productivity Report, (DPR), the next iteration of which is due February, 16th. Last month’s report forecast a decline from shale fields of ~89K BOEPD in February.

Looking ahead to the rest of 2021

The key indicators are in place for a continued increase in oil prices, as we have noted so far. One of the questions we now have to tackle is what can we expect in terms of pricing, and how fast might this happen?

Goldman Sachs, (NYSE:GS), has recently called for $65 Brent by mid-year. With the narrow spread ($2-3.00) between Brent and WTI in recent times, this would put WTI into the low $60’s. Goldman’s global head of commodities research, Jeffrey Currie, said in a note that accompanied the report-

“With vaccines being rolled out across the world, the likelihood of a fast tightening market from 2Q 2021 is rising as the rebound in demand stresses the ability of producers to restart production.”

Platts

The advent of this report moves Goldman’s forecast for the attainment of the $65.00 level by about months. With the conservative tone of previous Goldman reports, it’s likely that this also errs to the conservative side, meaning that mid-year provides them with some cushion for the relevant forces to play out. The chief relevant external force being the roll-out of the Covid vaccine and new infection and hospitalization rates continuing to decline.

Related: Will France Abandon Nuclear Power?

My expectation is that even with the increase in drilling and fracking taking place we shouldn’t expect sustained pricing over $60 for WTI before Goldman’s estimate of mid-year as there are bearish forces also in play that could put a damper on the rise.

Key countervailing forces that might dampen the market’s enthusiasm

The Saudis gave the oil market a gift early in January with the announcement that they were going to withhold another 1-mm BOPD from the market. As prices rise there is going to be pressure internally and externally from OPEC+ to start restoring production. This is baked-in though, meaning that this master-stroke that turned an already rising oil market on its ear, so-to-speak, was always going to be a transition move.

Saudi Arabia

 

Bloomberg

So with rising oil prices, the chances increase that the Saudis and OPEC+ will shift from supporting prices with restrained production to protecting their market share from competitors.

That move which we anticipate is not far in the future will act to slow inventory declines, which will keep prices from spiking too sharply in the near future.

Moving on we have China which almost single-handedly supported oil prices with its massive purchases last year. Estimates vary but China’s buying of cheap crude last year may give them a ~300 mm bbl cushion upon which to draw if prices rise too quickly.

Finally, there is an expectation for Iran to cut some kind of deal with the new political regime in the U.S. to restore full production. There aren’t any signals from the Biden administration as to just how pressing coming to some accommodation with Iran is on their agenda. That said, re-entering the Iran nuclear deal was a campaign bullet, so some relief is on the horizon for them.

Your takeaway

There are more bullish forces at play than bearish in my estimation, and the push higher for crude should continue. The key points supporting that contention are the declines in storage that we have documented here, and the current roll-over in new production to below 11.0 mm BOEPD. If those continue, as we expect they will thanks to a recovery led by declines in new Covid infection rates, crude has no alternative to going higher as the year advances.

By David Messler for Oilprice.com



37 Comments on "How High Will Oil Prices Go This Year?"

  1. DT on Thu, 4th Feb 2021 4:59 pm 

    Oh boy lets all hope for an oil spike to $250 in the next few weeks/months so that the economy can crash and burn for one more time leading to the end times.

  2. makati1 on Thu, 4th Feb 2021 5:20 pm 

    “How High Will Oil Prices Go This Year?

    Why, to the moon and back! And who cares anyway? No one is allowed to go anywhere so it will not matter to the serfs, only the suckers in the market and/or those who built their career on petroleum. Not a good idea if you are under 40. LOL

  3. DT on Thu, 4th Feb 2021 5:39 pm 

    If the price of gas goes up to much we all can resort to sofa power. https://www.youtube.com/watch?v=1RT-V3LUzQM

  4. OKFucktard on Thu, 4th Feb 2021 5:58 pm 

    OK fucktards, I heard you lound and clear. I get. I an talking to you fucktards in Canada

  5. OKFUcktgard on Thu, 4th Feb 2021 6:07 pm 

    I though a made myself very clear to stop talking about racism. Apparently you don’t get it. Not my problems yours.

  6. OKFucktars on Thu, 4th Feb 2021 6:18 pm 

    Apparetnlu BC still don’t get it. OK fuckers. I am not sure Quebec gets it either.

    B.C. health minister discusses racism in province’s health-care system – February 4, 2021
    https://www.youtube.com/watch?v=0620umTWhiQ

  7. OKFucktards on Thu, 4th Feb 2021 6:21 pm 

    Wrong ling above. Here is the good one:

    B.C. health minister discusses racism in province’s health-care system – February 4, 2021
    https://www.youtube.com/watch?v=tfN1JeUCIeU

  8. WhoIsTheMostPowerfullManInTheWorld on Thu, 4th Feb 2021 7:02 pm 

    https://www.youtube.com/watch?v=0620umTWhiQ

    Go to 23:24 and look at his facial. I did enjoy, I might like it.

  9. KarmaCanBeABitchEnJoyFucker on Thu, 4th Feb 2021 7:09 pm 

    There is a name for this Bidet, Karma. I heard you were a piece of all your life, and steal an election from Trump. Karma is coming for you.

  10. Roger on Thu, 4th Feb 2021 7:37 pm 

    “ Oh boy lets all hope for an oil spike to $250 in the next few weeks/months so that the economy can crash and burn for one more time leading to the end times.”

    Yep. “ “When He broke the third seal, I heard the third living creature saying, “Come.” I looked, and behold, a black horse; and he who sat on it had a pair of scales in his hand. And I heard something like a voice in the center of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not damage the oil and the wine.””
    ‭‭Revelation‬ ‭6:5-6‬

  11. LetsWatchTheWorldBurnTogether on Thu, 4th Feb 2021 8:35 pm 

    Really Canada and US dont deserve to be saved. Better to let it burn to the ground, no electrictiy, water, food. It is best for everyones.

    Biden announces memo on protecting LGBTQ rights globally, restore refugee admission program | FULL
    https://www.youtube.com/watch?v=CrLrHbEU7Xo

  12. YouAskForItYouWillGetIt on Thu, 4th Feb 2021 8:54 pm 

    IT would appear that either Quebec, US or Canada are tracking my google search and modified, my YouTube front page. You are asking for it and You will get it. This is I did forget.

  13. YouAskForItYouWillBeServed on Thu, 4th Feb 2021 8:56 pm 

    Correcting the mistake above: This I did not forget I means

  14. Biden's hairplug on Fri, 5th Feb 2021 12:58 am 

    “Oh boy lets all hope for an oil spike to $250 in the next few weeks/months so that the economy can crash and burn for one more time leading to the end times.”

    DT is a prominent member of the collapsenik society, so much is certain.

    As a cynical European I can only support this wish, lets collapse the West… so we can start all over again… on a… errr… white basis.

  15. Biden's hairplug on Fri, 5th Feb 2021 1:21 am 

    Really Canada and US dont deserve to be saved. Better to let it burn to the ground, no electrictiy, water, food. It is best for everyones.

    Excellent, excellent, that’s’the spirit! Identify with your identity, heritage and civilization of 30,000 years, rather than these arbitrary borders, that can and will change in a heartbeat.

    https://www.youtube.com/watch?v=amApwFT49JQ

    “When He broke the third seal, I heard the third living creature saying, “Come.” I looked, and behold, a black horse; and he who sat on it had a pair of scales in his hand. And I heard something like a voice in the center of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not damage the oil and the wine.””
    ‭‭Revelation‬ ‭6:5-6‬

    You really takes these jewish drivel and ancient superstitions serious, now don’t you? You know what, for $100 I’ll write you your daily horoscope. And then there is that bridge…

    Whatever, anything that brings about a Great Reset, is welcome. Great Reset NOT meaning handing over the planet to George Soros, but instead…

    – officially terminate Christianity in Europe and replace it with pagan antiquity
    – a thorough review of the Anglo-Zionist WW1/WW2-narrative
    – kill globalism, as far as I’m concerned, close down Airbus & Boeing and all major airports
    – push through 100% renewable energy world-wide
    – eliminate private car ownership, you can have a 2-e-wheeler at best. Autonomous vans up to 100 km, above that fast train network to connect major cities, cities car-free
    – tame capitalism: max. private wealth (20 million or so), basic income of a few 100 euro, too much to die, too little to live from
    – end of empire, erase the dollar from Eurasia, multi-polar world, consisting of a European, a Chinese, a Muslim, an African, a Hispanic, a Hindu world + some left-overs like Japan, England. Close down NYC and move the global institutions to the middle of Eurasia, halfway Europe and China. Europe (incl. Russia and US Heartland) and China will carry the coming multi-polar world order.
    – absolute priority to be given to ecology and restoration of the biosphere.

  16. YouAskForItYouWillBeServed on Fri, 5th Feb 2021 8:23 am 

    I am committed to the destruction of Canada and US be not contributing anything into Canada future.

    https://www.weforum.org/press/2021/02/world-economic-forum-appoints-new-member-to-board-of-trustees-4c1068e22b

    As of 3 February 2021, the Members of the Board of Trustees of the World Economic Forum are:

    Chrystia FREELAND Deputy Prime Minister and Minister of Finance of Canada

  17. YouAreBeingServedRightNow on Fri, 5th Feb 2021 8:53 am 

    I forgot to say this apply to Quebec also. I am committed to the destruction of Canada, Quebec and US be not contributing anything into Canada future.

    Je ne t’aime pas la face Legault. Je n’aime pas la face a guidouin Guibault. Je peux la sentir cette christ de pute sale.

  18. YouAreBeingServedRightNow on Fri, 5th Feb 2021 9:01 am 

    These stupid fuckers still believe they can destabilize Russia and steal their oil. Not going to happen suckers. Putin is in charge and he is not a loser, like TrudDope, Retard Lego, Joe Bidet and Repugnant bitch Harris.

    https://www.youtube.com/watch?v=bGJ7rzjgA_M

    You will be server pieces of shits.é

  19. BringDeathAndDestruction on Fri, 5th Feb 2021 9:29 am 

    Look at this piece of shit from nato. These are the swamp Trump was talking about.

    Look at this fucking loser. An inferior man that thinks he knows better. Look at his physicals attributes. They are the physicals attributes of a women or a gay men. These kind of man cannot survive without the money system. These man cannot fix anything themselves: car, house, electrical and so on. They are the losers of the human race and are dependent on money system to survive because they have no practicals skills: like welding, sewing and son. I will enjoy watching man like him die.

    THis price of shit find of way to include global warming in his speech.

    https://www.youtube.com/watch?v=1dM9SnmowrE

  20. Duncan Idaho on Fri, 5th Feb 2021 9:31 am 

    “Salsman, a 44-year-old married father of three daughters, won the top prosecutor position after running as a Republican in November 2019.”

    (A district attorney sexually assaulted abuse victims on his office desk, authorities said. Then he allegedly pressured them to lie about it.)

    Aside from ripping people off, repugs are good at other things?

  21. ExampleOfAParasiteLoser on Fri, 5th Feb 2021 9:39 am 

    https://www.youtube.com/watch?v=1dM9SnmowrE

    Jump at 6:20 to see what the swap look like. See comment above

  22. PunjabiAreWearingRollToiletPaperOnTheirHead on Fri, 5th Feb 2021 9:44 am 

    This is a fucking Punjabi that is a real plaque in Canada. They don’t have the decency to dress like Whites people. They still insist on Wearing a roll of toilet paper on their head. Fuck this guy must stink like shit. The man is a complete idiot

    10:30 ET / 7:30 PT: NDP Leader Jagmeet Singh discusses party’s proposal for long-term care

    https://www.youtube.com/watch?v=g2bbtxeXv8w

  23. HereAnotherLoserPoliticians on Fri, 5th Feb 2021 9:55 am 

    Let’s talk about another loser here is Canada:

    Pierre Poilievre

    https://www.youtube.com/watch?v=jDBMOSfAi0A

    Look at this fucking loser. An inferior man that thinks he knows better. Look at his physicals attributes. They are the physicals attributes of a women or a gay men. These kind of man cannot survive without the money system. These man cannot fix anything themselves: car, house, electrical and so on. They are the losers of the human race and are dependent on money system to survive because they have no practicals skills: like welding, sewing and son. I will enjoy watching man like him die once the system collapses.

  24. Duncan Idaho on Fri, 5th Feb 2021 10:26 am 

    “as far as I’m concerned, the fact that we could elect Trump in the first place says we are in decline. The events of January 6th just confirm that. If the Democrats can demonstrate effective governance I will be much more optimistic. But the jury’s still out.”

  25. USEmpireIsDone on Fri, 5th Feb 2021 11:39 am 

    Listen to the Bidet. I don’t know who prepare the economical speech. Probably Yellow (Yellen). He uses words like prosperity, international trade, These old economical buzz words. Peak oil is here and the old system (globalism) has died with peak oil. These fuckers don’t get, your empire has died and the world is laughing at you, get it dumb mother fucker. If you wanted to keep you empire alive a little bit longer you had to elect Trump. Congratulation who is behind bidet election, you killed the US empire for good. I was counting on this. It speeds up things.

    https://www.youtube.com/watch?v=ZKZvPhk6TBw

  26. Cloggies' Buttplug on Fri, 5th Feb 2021 12:11 pm 

    I hope you schlemiels are enjoying my muppet show. I know I am

  27. EnjoyEurope on Fri, 5th Feb 2021 12:24 pm 

    Running out of oil Europe. You have no natural resource left. You cut all your trees to build wooden ship to sail to world. Now, you have no trees left. So now, you are trying to steal Russian oil. Europe looking more and more fuck every day. Enjoy mother fuckers. Europe was the biggest globalist whore of the whole earth. Enjoy fuckers..

  28. EnjoyEurope on Fri, 5th Feb 2021 12:26 pm 

    My comment above does not make sense without the video below.

    Germany: Berlin backs Ukraine”s ban on TV channels with Moscow ties – FM spox

    https://www.youtube.com/watch?v=OLqPkivF-y4

  29. EnjoyEurope on Fri, 5th Feb 2021 12:28 pm 

    Canada will take the Russian oil if you don’t want it Europe.

  30. FuckEurope on Fri, 5th Feb 2021 12:38 pm 

    WOW, I am going mentally insane. I need Fabrics to sew clothing. So I am happy retard lego opened the stores on monday.

  31. Biden's hairplug on Fri, 5th Feb 2021 12:51 pm 

    “I hope you schlemiels are enjoying my muppet show. I know I am”

    Well, apneaman, you are certainly not running the show, so much is certain. Poor sod, hiding behind an irregular nick, applying hit-and-run tactics. There is little grandeur in that. You’re losing it, buddy. What are you going to do about it?

  32. YouVoluntaryKillUSEmpire on Fri, 5th Feb 2021 1:23 pm 

    You see fuckers, I am talking about the US, every empire dies. But you fuckers, that put Bidet in power, accelerated the death of your empire. History will talk about thi moment and books will be written about this period of history. Wow, you fuckers are really stupid piece of garbage shit. WOOOW.

  33. HarrisWillFuckUpUSGood on Fri, 5th Feb 2021 2:01 pm 

    I thought I was rough on TrudDope about this race thing, TrudDope is nothing, compare to repugnant bitch harris. TrudDope is like a light weight. The US is going full retard with the race thing and humiliating themselves even more, if that was possible. Judge for yourself.

    THe Harris administration will be all about blacks and race. You would think they have more important things to take care off. History book will probably mention that.

    Kamala Harris Meets with Black Chambers of Commerce | LIVE

    https://www.youtube.com/watch?v=T9G9AyTv4M0

  34. JustSayingHello on Fri, 5th Feb 2021 2:22 pm 

    HI starvingLion and outcastphilospher. As you can see, I am turning mentally insane. Just saying hello. We are witnessing history in the making, they will write a lot of books about the epoch.

  35. IHopefullyIWillDie on Fri, 5th Feb 2021 2:29 pm 

    I have to shovel snow from my drive way. Hopefully I will die of a heart attack. This would is hell. I must have done something wrong in the past.

  36. Duncan Idaho on Fri, 5th Feb 2021 6:24 pm 

    Trump Is the First President to Leave Office With a Loss of Jobs Since Hoover

    See, the Fat Boy does have some accomplishments.

  37. makati1 on Fri, 5th Feb 2021 6:50 pm 

    His time is not over, Duncan. He also stirred up the red states and the “putdown” people who live there. I see a very hot, as in riotous, Summer ahead for Amerika. At least, I hope so. Spring is coming. Be patient. ^_^

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