Vantage Point Advisors’ Energy Blog August 2021

Global Oil Supply / Demand Snapshot

Earlier this month BP released its Statistical Review of World Energy 2021 (Review) providing a comprehensive overview of major energy sources supply and demand on a country-level basis. For 2020, the Review reported the largest decline in oil consumption on record. After nine consecutive years of increase, the COVID-19 pandemic caused global consumption of crude oil to decline by more than 9 million barrels per day (BPD) in 2020 to 88.5 million BPD. [1]

Global Oil Consumption 1965-2020

Global Oil Consumption in 2020

The United States remains the world’s top oil consumer, averaging 17.2 million BPD in 2020. China was second at 14.2 million BPD and was the only country in the Top 10 to report an increase in oil consumption in 2020.

Daily Consumption of Oil in 2020

The Top 10 consumers in 2020 were the same countries as in 2019, with the exception that Saudi Arabia has jumped ahead of Japan, and Brazil jumped past Canada.

U.S. Remains the Oil Production Champion

Despite the impact the pandemic has had on oil production, the U.S. remains the world’s top oil producer at 11.3 million BPD. Russia and Saudi Arabia retained their positions at numbers 2 and 3, however, Saudi Arabia and other OPEC countries engaged in production cuts in response to the 2020 pandemic. [2]

Daily Production of Oil

The Review also reports that global proved oil reserves declined by 0.1% to 1.72 trillion barrels. Venezuela continues to claim the most reserves with 304 billion barrels, but this is primarily extra heavy crude in the Orinoco Belt. In order to qualify as proved reserves, oil needs to be technically and economically recoverable at prevailing oil prices. That may not be the case with this heavy oil. In that case, Saudi Arabia’s 298 billion barrels would lead all countries.

WTI Strip Prices Decrease

Considering the August 2nd price decrease, spot prices and near-term futures prices for the WTI contract decreased by over $3.00 per barrel.

Oil Strip Prices

The oil price curve remains in “backwardation” reflecting the market’s expectation of lower future spot prices.

Oil Price Outlook

The price distribution below shows the crude oil spot price on August 2, 2021, as well as the predicted crude oil prices based on options and futures markets. Blue lines are within one standard deviation (σ) of the mean, red lines are within two standard deviations.

Oil Price Outlook

Based on these current prices, the markets indicate there is a 68% chance oil prices will range from $57.00 and $82.50 per barrel in mid-November 2021. Likewise, there is roughly a 95% chance that prices will be between $38.50 and $104.50. By mid-January 2022, the one standard deviation (1σ) price range is $53.50 to $84.50 per barrel, and the two-standard deviation (2σ) range is $33.50 to $111.00 per barrel.

Key Takeaways

Remember that option prices and models reflect expected probabilities, not certain outcomes, but that does not make them any less useful. If someone asks you longingly if oil will be over $80 per barrel again soon, you now can respond that markets indicate there is about a 20% probability that oil prices are expected to get there by this November.

For more information, contact:
Gregory E. Scheig, CPA/ABV, CFA, CMA
Vantage Point Advisors
Managing Director / Energy Practice Leader
Certified Mineral Appraiser
180 State St., Suite 225, Southlake, TX 76092
214.254.4801
gscheig@vpadvisors.com

 

[1] Forbes, The U.S. Remained The World’s Top Oil Producer In 2020, Robert Rapier, July 29, 2021

[2] Note that these production numbers are for crude oil and lease condensate. The U.S. also leads all countries in the production of natural gas liquids (NGLs), which partially end up in the oil products supply chain. Meaning, if NGLs are included, the U.S. has an even larger lead over Russia and Saudi Arabia.