Looking Back at Global Oil Prices

Global oil prices rose significantly in 2021, making up for the losses clocked in 2020. The benchmark Brent crude oil went up 55 percent in 2021. It kicked off the year at $55 per barrel, rose to $70/b in Q1, rallied to just below $80/b mid-year, then ripped upward to $86/b in October before closing the year at $75/b. Brent’s average price for 2021 was $71/b, a three-year high.

Another benchmark, West Texas Intermediate (WTI) crude oil, followed a similar pattern as Brent crude. It started the year at $47/b, hit about $75/b mid-year, peaked at $86/b in October, then closed the year at about $75/b. Its average price for 2021 was 68/b. Overall, WTI was up 62 percent for the year.

Oil prices started the year positively, rising on the back of a global re-opening of economies after months of COVID-19-related lockdowns. High vaccination rates and loosening travel restrictions unleashed a demand for oil much higher than producers could supply, prompting upward price action.

The global mismatch in demand and supply at the start of 2021 was largely because of a December 2020 resolution by the Organization of Petroleum Exporting Countries (OPEC) to limit oil production by 0.5 million barrels per day (mb/d) to shore up prices that had taken a beating in 2020 (Brent fell about 27 percent in 2020).

In the United States, high crude prices were propped up by low production from United States producers (up to 1.3mb/d less) because of adverse weather in February and producers' general decline in investment. Data from the US Energy Information Administration (EIA) shows that since Q3 2018, the 47 publicly traded United States energy and petroleum explorers and producers have generally been winding down capital expenditure from over $23 billion to about $6 billion in Q3 2020. Though they increased capital expenditure for most of 2021, this still lagged behind their 2015-2018 investments. The ratio of capital expenditure to cash flow for the 47 producers was 41 percent in Q3 2021, the lowest in 26 years.

These local and global factors contributed to such a low crude supply at the start of 2021 that by March 2021, Brent prices had recovered to their January 2020 highs of $70/b and by mid-year, were just shy of $80/b.

In July 2021, OPEC announced that it would start increasing crude oil production every month by 0.4mb/d. This calmed the markets, with Brent withdrawing to below $70/b in Q3. However, the reprieve was short-lived. Hurricane Ida, a Category 4 hurricane, made landfall on the United States coast of Louisiana on Aug. 29, shutting down 96 percent of crude oil production in the Gulf of Mexico. This, combined with commercial oil inventory shortages and high demand in Asian markets, triggered an energy shortage that was the catalyst for the final crude oil rally of the year, where Brent prices hit a seven-year high of $86/b in October.

Toward the end of the year, the emergence of a new COVID-19 variant, Omicron, caused tension. Renewed lockdowns and travel restrictions in parts of the world dealt a blow to oil, and Brent declined from its multi-year high to close the year at about $77/b.