• Oil in 2020 - How Did Production Change?

Fuel for Thought

Oil in 2020 - How Did Production Change?

Feb 21 2021

2020 was a year like no other in living memory. The rapid spread of coronavirus brought entire economies and industries to a virtual standstill, with the oil sector one of the most heavily affected. Plummeting demand led to a massive surplus of available oil, causing prices to slump and production to be scaled back.

But while the past 12 months did herald the first time that oil demand growth has reversed in over a decade, experts are predicting a new dawn for the lubrication oil sector in 2021. As the pandemic is contained and the global population is gradually vaccinated, industries are expected to reopen and demand to rebound. Here are the major findings from the International Energy Agency’s 2020 report.

Falling demand

The oil industry was already under threat prior to the outbreak of COVID-19 due to changing attitudes towards the energy industry. With climate change an increasingly important priority for governments, businesses and individuals around the world, the transition to renewable forms of power generation has been underway for some time now. This has affected oil production via the upturn in wind, wave and solar energy, as well as the influx of electric vehicles (EVs) on the market today.

However, the biggest turning point in 2020 was undoubtedly the pandemic. With lockdown measures in place all around the globe, passenger vehicles were removed from our roads and industries, offices and other places of business closed their doors. This led to a substantial drop-off in oil demand, with a one million barrels per day (bpd) shortfall compared to 2019. That’s the first negative growth that the oil sector has experienced since 2009.

Stuttering supply

Supply was already in retreat due to geopolitical issues, with sanctions imposed against Iran, Libya and Venezuela leading to a cumulative loss of 3.5 million bpd since the beginning of 2018 from those three countries. Meanwhile, a glut of supply had already prompted OPEC+ countries to slash production prior to the outbreak of the virus.

Once the pandemic hit, however, the price of the commodity crashed so hard that further cuts were required to attempt to stabilise it. Much of this revolved around recent developments in the Asian oil industry, with the Middle East particularly important in this equation. Saudi Arabia were instrumental in leading the cuts to production and their efforts were supported by other Gulf powers including the UAE and Iraq.

What the future holds

Despite the disappointing performance of the oil industry last year, the outlook for 2021 is still optimistic. The IEA projects year-on-year growth of 2.1 million bpd in terms of demand, while production capacity is set to increase across the globe. The USA will initially be the largest source of new supplies in the coming years, before plateauing by 2023. Other capacity expansions are expected from Brazil, Canada, Guyana, Iraq and the UAE.

Those changes will ensure that supply continues to outstrip demand for oil, even as that demand increases. By 2025, the IEA expects oil demand to have surged by 5.7 million bpd, but expansion plans in the aforementioned countries means that capacity will increase by 5.9 million bpd. As a result, oil poverty is not expected to be an issue in the immediate future.


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