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Updated June 2021

 

Figure 1.2 shows the historical and forecast price of West Texas Intermediate (WTI).

Summary

The average annual price of WTI crude oil was US$39.23 per barrel (bbl) in 2020, representing a decrease of 31 per cent from 2019.

Over the forecast period, the base-case price is projected to average US$53.00/bbl in 2021, US$54.00/bbl in 2022, and to increase to US$70.00/bbl by 2030. With the assumption of extended lower demand for transportation fuels, the low-price case projects WTI to average US$40.53/bbl in 2021, US$41.29/bbl in 2022, and US$53.52/bbl by 2030. The high-price case, which considers a rapid economic recovery, results in an average price of US$69.32/bbl in 2021, US$70.62/bbl in 2022, and US$91.55/bbl by 2030.

In 2020

COVID-19: The COVID-19 pandemic led to a historic drop in global oil demand and an unexpected supply surplus. Monthly prices dropped to a low historical level of US$17 in April, a price unseen since 1999. With producers facing growing oversupplies and rapidly filling storage capacity, prices went negative for the first time on the record. By summer, with the gradual removal of restrictions and lockdowns, coupled with voluntary supply cutback, prices began to rebound, reaching about US$40/bbl by November. Prices continued to increase with optimism on rollout of COVID-19 vaccines, to an average of $47.02/bbl in December.

U.S. production: Growing North American inventories throughout 2020 weighed on the price of WTI. U.S. oil production fell from the 2019 record level of 12.2 million bbl/d to 11.3 million bbl/d in 2020, as a result of well shut ins and a steep drop in drilling activity. However, the larger decrease in domestic consumption led to exports increasing slightly, to 3.2 million bbl/d in 2020, up from 3.0 million bbl/d in 2019.

OPEC+ supply management: In response to the sudden drop in oil prices, OPEC+ agreed to a significant production cut in April. The 9.7 million bbl/d production cut represented the single largest output cut in history. For the second half of 2020, oil production was cut by 7.7 million bbl/d. The supply reduction contributed to a decline in oil inventories throughout the year, providing upwards support to prices.

Forecast for 2021 to 2030

The forecast for WTI price is dependent on demand side factors, such as the rate at which the global population is vaccinated and the lasting behavioral impacts of COVID-19 on oil consumption. On the supply side, prices are dependent on the duration of, and adherence to, the targeted OPEC+ production cuts. The degree to which the U.S. shale industry responds to the recent relative strengthening in oil prices will also impact prices.

This forecast for 2021 assumes that WTI prices will be supported by OPEC+s’ commitment to restrain supply and the global economy will strengthen. However, the recovery in global demand could be challenged by new COVID variants, highlighting OPEC+’s key role in balancing supply amid the potential for a slower than expected demand recovery.

By 2030, in absence of a larger shift to policies that reduce oil consumption, it is still improbable to foresee a rapid decline in oil demand. The lower need for transport fuels may be offset by growing feedstock requirements in the petrochemical sector, particularly in developing economies.

Balancing global supply and demand: According to the International Energy Agency (IEA), pre-pandemic (2019) world oil demand was about 100 million bbl/d. The agency forecasts that demand could return to that level by 2023 or 2024. Given the supply and demand imbalance and uncertainty around economic recovery due to COVID-19, the price of WTI is expected to remain subject to volatility in the near term.

Effectiveness of OPEC+ cuts: The renewed and expanded OPEC+ cuts suggest efforts to manage prices via supply curtailment will continue. Unilateral cuts, such as those implemented by Saudi Arabia, paired with a decrease in global inventories may support higher prices. However, increases in North American prices will be capped by the responsiveness of shale oil production.

U.S. oil production: In the short term, U.S. production is projected to remain near the high levels of 2019 to 2020. However, most U.S. production gains in recent years have come from shale/tight plays. Since wells producing in shale/tight plays have steep decline curves, significant increases in new drillings are required to maintain production level. Amid an uncertain capital environment, U.S. oil production growth could be limited in 2021, but may rise in 2022 as operators are better able to finance their projects and drilling activities recover.

Geopolitical tensions: Simmering geopolitical tensions in Middle East may contribute to heightened levels of uncertainty in the oil market.

Low-Price and High-Price Cases

The low-price and high-price cases represent the near- and long-terms scenarios for WTI prices.

Low-price case:
  • Reductions in demand due to resurgence of new COVID-19 variants.
  • Compliance with the OPEC+-led cuts is underachieved.
  • U.S. shale production sustains growth through the forecast period.
High-price case:
  • COVID-19 vaccination rollouts conclude faster then projected.
  • Economic activity rebounds faster than expected, significantly supporting global oil demand in the short term.
  • The price of WTI is bolstered by cuts led by OPEC+ to global production that effectively reduce inventories.
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