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After 2020’s wild ride, all eyes will be fixed on oil prices this year. OPEC and allies have the tools to hold prices steady – but what about growth? Price rises will depend on numerous factors, but there is one market generating fresh hope for oil producers and traders.

Oil trading

At the time of writing, WTI and Brent futures were trading above $52 and $55 respectively. Prices have held steady since December 2020 around these levels, possibly linked to a higher draw on oil barrels in the US, as well as OPEC’s production cuts. According to the latest EIA storage reports, stocks saw a 3.2m drop against a 2.3m forecast.

But let’s look at that with a critical eye. It’s tax season in the US, and around this time oil owners remove barrels from inventories in order to avoid hefty taxes, so they may not actually be being used to create oil products, for manufacturing, or for fuel. Other petroleum products saw a rise in storage numbers in the last review period. For instance, 4.4m gasoline barrels were added to US reserves. That doesn’t necessarily point toward a reestablishment of demand.

For higher demand, we have to look eastward. China has had a much better year, when it comes to oil consumption, than western markets. A combination of cheap prices across 2020 and several new refineries and processing facilities coming online proved good for Chinese oil consumption. Its oil imports rose 7.3% in 2020, with Chinese refineries processing record-high volumes (13.51m bpd – an annual increase of 3.2%).

China is also the only major economy to show GDP growth last year, with GDP volumes rising 2.3%.

But while China’s economic and oil data is encouraging, the fact remains that Covid-19 still looms large in the majority of other key oil markets. New cases continue to mount in the US and Europe. Vaccine rollouts are going slowly outside of the UK, which puts pressure on short-term oil demand.

Natural gas

Last week, Goldman Sachs predicted a “bullish storm” for natural gas prices. Colder average temperatures are prepared to hit the US Midwest, hitting a small surge with predicted resistance levels at $2.918 per MMBtu. However, storage levels are 126 bcf higher than this time last year. Will higher inventories lower prices?

We can look to elsewhere than the US for reasons why natural gas prices might be due a rally.

This winter season, a rebound in Asian natural gas demand, supply issues at major LNG exporters, logistics issues at the Panama Channel, soaring tanker rates, and a continent-spanning cold snap from Madrid to Tokyo, are pushing gas prices higher.

Analysts predict that, even with temperatures warming up in the summer months, buyers will be looking at restocking for winter, which should keep prices stable throughout the year.

Natural gas could be shaping up for a strong 2021.

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