Should 2020 be forgot and never brought to mind? A year that many in the energy industry would like to forget but most likely will not. The year that oil prices went sub-zero, something people thought could never happen. They never learned the lessons of the potato market. Or the real rule of commodity prices which is never say; never.
The year of Covid saw the global economy grind to a halt because the Covid19 virus causes the biggest drop in global economic output since the days of the Great Depression. For oil, we saw demand drop over 8% the biggest percentage demand drop year over year in history that caused billions of dollars in energy investment write-downs as well as a wave of bankruptcies. Just overnight MarketWatch reported That Exxon Mobil Inc. XOM, +0.80% said it expects higher oil and gas and chemical prices to boost fourth-quarter earnings, but it is also expecting to write down $18 to $20 billions of upstream assets. In a regulatory filing, the oil giant said chemical margins would improve by $200 million to $400 million from the third quarter, while downstream margins would range from down $100 million to up $100 million.
Yet for 2021 the outlook for oil is more positive. Record OPEC Plus cuts along with a major drop in US production has seen the global supply-demand balance tightened. If the trend continues and demand continues its comeback is likely the market will be undersupplied in late 2021. The tougher regulatory environment with an incoming Biden Administration will also hamper the US oil production recovery. Demand will recover before production and that means higher prices in 2021 and beyond
We saw demand for gasoline rise again and refinery runs to jump in the Energy Information Administration (EIA) report, but new strains of the virus are offsetting the bullish data.
The EIA reported U.S. commercial crude oil inventories fell by 6.1 million barrels from the previous week. At 493.5 million barrels, U.S. crude oil inventories are about 11% above the five-year average for this time of year.
Total motor gasoline inventories fell by 1.2 million barrels last week and are about 1% above the five-year average for this time of year.
Distillate fuel inventories increased by 3.1 million barrels last week and are about 6% above the five-year average for this time of year. That was in part because of factories shutting down for the Christmas holiday.
Gasoline demand jumped week over week and refinery runs jumped signaling better demand overall but the new strain fears is keeping a lid on excitement. Overall demand based on total products supplied over the last four-week period averaged 19.1 million barrels a day, down by 6.4% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 7.9 million barrels a day, down by 13.2% from the same period last year. Distillate fuel product supplied averaged 3.8 million barrels a day over the past four weeks, up by 0.3% from the same period last year. Jet fuel product supplied was down 31.8% compared with the same four-week period last year. Still a ways to go.
Thank You to all of the Energy Report Readers for your loyalty and support. Not only last year and over the years. I pray that for all of you and the world that 2021 will be our best year ever. Despite all of the challenges that many faced in 2020 there are many rays of hope in the New Year. Keep the faith and have a very blessed New Year!
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