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Crude prices have already surged 35% from the lows of October-end to $51 per barre. REUTERS/Vasily Fedosenko/File Photo (REUTERS)
Crude prices have already surged 35% from the lows of October-end to $51 per barre. REUTERS/Vasily Fedosenko/File Photo (REUTERS)

Petroleum prices set to rise in 2021 as vaccines take effect

  • Though analysts expect global fossil-fuel demand to remain soft in the coming years as companies commit to net-zero goals and countries attempt to limit emissions, fuel demand in India will still surge

MUMBAI : Oil prices, that touched a historical low of $20 a barrel in 2020, may see better days in 2021 albeit in the second half, with analysts expecting vaccine to boost demand for the commodity globally.

Crude prices have in fact, already surged 35% from the lows of October-end to $51 per barrel. Spot liquefied natural gas (LNG) prices have surged from $2.1-3.5 per million metric British thermal unit (mmBtu) in Q1-Q2FY21 to $7 per mmBtu in Q3FY21 and have currently spiked to $11.1 per mmBtu for January 2021 delivery.

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"Vaccine-driven demand recovery is likely to boost gross refining margins, oil and spot LNG," said ICICI Securities in a note dated 16 December.

Analysts predict oil to be between $49 per barrel and $53 per barrel for Brent crude and US West Texas Intermediate (WTI) crude at $50 per barrel in 2021.

"Potential rollouts of high-efficacy vaccines in the short term would be a turning point for demand as it could lead to a more sustainable economic recovery," said Barclays Bank in a note.

Though analysts expect global fossil-fuel demand to remain soft in the coming years as companies commit to net-zero goals and countries attempt to limit emissions, fuel demand in India will still surge.

Indian diesel consumption was up 7.5% year-on-year in October, while in November it was down 6.9% year-on-year. US diesel consumption, on the other hand, declined 3.3% year-on-year in November than 6.7% in October.

The International Energy Agency, (IEA) estimates global oil demand, which is down 8.8 million barrels per day (mbpd) year on year in 2020, to be up 5.8 mbpd year-on-year in 2021.

IEA forecasts Brent prices will average $47 per barrel in the first quarter of 2021 and rise to an average of $50 per barrel by the fourth quarter.

The Organization of the Petroleum Exporting Countries (Opec)-plus grouping early this month decided to increase the crude oil production by 500,000 barrels per day from January, a positive for India to which it supplies nearly 83% of its crude oil.

Certain measures, however, could trigger a fall in oil prices. These could include Joe Biden administration lifting US sanctions on Iran’s oil exports (which may boost Iran’s output and exports by over 2mbpd), lockdowns in US and Europe due to second Covid wave, which has led to demand recovery reversal, surge in Libya’s oil output to 1.28 mbpd from just 0.17 mbpd in September and US oil rig count rise by 50% (86) from the lows of mid-August.

For refiners, vaccines-driven demand recovery is likely to boost gross refining margins. GRMs, though up from lows, have not really improved after the announcements of high-efficacy Covid vaccines in November.

“The announcements of high-efficacy vaccines against Covid boosted oil prices, but not GRMs. Singapore GRM in fact declined by 32% month on month to $1.07 per barrel in Nov’20 and further to $0.46 per barrel in Dec’20 to date due to fall in all product cracks except diesel and jet fuel," said ICICI Securities.

Fuel demand however, may take time to return to pre-covid levels as consumption patterns have changed due to covid-19 and economies may take longer to recover.

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