Business Outlook 2020 - Autumn Snapshot

BUSINESS OUTLOOK 2020: Autumn Snapshot

Oil and Gas Market Update

Oil Market Brent crude averaged just under $41 per barrel (bbl) across the first 10 months of 2020, with the period having been one of the most volatile and unpredictable the market has ever seen. This is more than $23/bbl below the 2019 average price. During October, Brent saw a decline in price from $43/bbl on 8 October to $37/bbl at the end of the month — a four-month low — amidst concerns around the rising second wave of COVID-19 and restrictions to limit its spread. After averaging less than $30/bbl in the second quarter, there was some limited recovery in prices during the third quarter, in which they averaged $43/bbl. This was in line with the easing of lockdown restrictions at the time, resulting in increased economic activity and subsequent oil demand rates. However, demand still remains significantly below rates seen in previous years, with ongoing uncertainty around how it will continue to develop amid concerns around a second wave of COVID-19 and further economic restrictions. The International Energy Agency (IEA) has shown that demand in August was 9.3 million barrels per day (bpd) lower than in 2019. 1 Although some recovery was seen in September, this remains fragile and is likely to be impacted by an increasing second wave of COVID-19. 2 The IEA downgraded its full-year outlook by a further 300,000 bpd in September, to 91.7 million bpd — almost 9 per cent lower than 2019. The reduction in demand has driven some blocs and individual nations to implement production cuts, helping to bring an element of balance to the market. Compliance with production cuts has generally been high, though concerns around supply rates persist.

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Nominal Average Monthly Brent Price ($/bbl) Nominal Average Monthly Brent Price (£/bbl)

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80

60

40

Brent Price ($/£ per Barrel)

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Source:EIA Any increase in supply could result in further price reduction given the slower rate of demand recovery. Most outlooks show Brent prices remaining relatively low for a prolonged period and futures contracts remain below $42/bbl throughout 2021 and below $50/bbl until the end of 2023.

1 www.iea.org/reports/oil-market-report-september-2020 2 www.iea.org/reports/oil-market-report-october-2020

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