Crude Oil Prices Increased Due to the Outpaced Supply

Crude Oil prices rose in 2021 as global petroleum demand grew faster than supply due to rising COVID-19 vaccination rates, relaxing pandemic-related restrictions, and a booming economy. Brent, a global benchmark, began the year at $50 per barrel (b) and rose to a high of $86 per barrel (b) in late October before falling in the last weeks of the year. Brent’s annual average of $71/b for 2021 is the highest in three years.

In 2021, the price of West Texas Intermediate (WTI) Crude Oil followed a similar trajectory to Brent, averaging $3/b less. Global oil supply grew at a slower rate than demand, resulting in higher prices. The OPEC+ production cuts that began in late 2020 were mostly to blame for the slower growth in output. In December 2020, OPEC and other nations that coordinate output with OPEC stated that production increases will be limited during 2021 to maintain higher Crude Oil prices.

According to our December 2021 Short-Term Energy Outlook (STEO), Crude Oil production in the United States in 2021 will be down 0.1 million barrels per day (b/d) from 2020 and 1.1 million b/d from 2019. This drop was partly due to cold weather in February and hurricanes in August, but it was also due to a drop in investment among US oil producers since mid-2020.

From February to December, steady worldwide petroleum and liquid fuels inventory withdrawals came from rising demand and reduced supply, contributing to higher prices. The highest inventory draw occurred in February, when Saudi Arabia curtailed its output by 1.0 million barrels per day and the United States experienced extreme cold, resulting in well freeze-offs and a 1.3 million barrels per day drop in Crude Oil production.