The oil market’s wild pandemic ride is about to take another turn

Saudi Arabia, which leads OPEC, has pushed for oil production cuts throughout the pandemic.
Saudi Arabia, which leads OPEC, has pushed for oil production cuts throughout the pandemic.
Image: Saudi Press Agency/Handout via REUTERS
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The oil industry is no stranger to boom-bust cycles, but the pandemic has been its wildest ride to date, and on March 4 it’s due to take another turn when OPEC meets to consider rolling back production cuts.

As the world’s cars and airplanes idled, global oil demand bottomed out in April at levels 16.4% below the previous year, dragging the price into negative territory for the first time. For the whole year, demand fell an unprecedented 8.8% and still has a long road to recovery.

White-knuckling through it all has been OPEC, the 13-member cartel that dictates quotas for most of the world’s biggest oil-producing countries (notably excluding the US). By tightening or loosening the world’s oil tap, OPEC effectively controls the price of the world’s most valuable commodity. The group has met regularly throughout the pandemic for members to butt heads over its central paradox: To sell less at a higher price, or sell more at a lower price.

At this week’s meeting, OPEC will be joined by ten “OPEC+” non-members including Russia and Oman, and will likely agree to increase production. By how much, exactly, is complicated by the fact that oil is currently above $60 per barrel, around where it was before the pandemic—but could easily crash again if the group hits the gas too hard. As Rystad Energy analyst Bjornar Tonhaugen put it in a research note: “In a high oil price environment, Russia will also have more sympathetic ears listening to its call for increasing supply, which will jilt the group dynamics away from the cautious approach led by Saudi Arabia which created the bullish environment in the first place.”

Here’s a look back at the oil market’s crazy year:

March 2020: As the global economy freezes up, Saudi Arabia and Russia can’t agree on production cuts, and the price dips 30% overnight.

April 1, 2020: Prices fall below the level needed for most US fracking companies to turn a profit, and Whiting Petroleum becomes the first of hundreds to declare bankruptcy.

April 12, 2020: OPEC+ members agree to a record cut of 9.7 million barrels per day through June, about 10% of global production.

April 20, 2020: The price of oil goes briefly negative for the first and only time in history.

May 2020: Global oil storage facilities run out of space as producers find they can’t get rid of the stuff fast enough.

June-July 2020: As OPEC’s production cuts sink in, the price rises, but stalls around $40. This is by OPEC design: The price is workable for members, but still too low for most US producers.

July 15, 2020: OPEC agrees to roll back cuts through December to 7.7 million barrels per day.

Sept. 17, 2020: An OPEC committee warns members not to skirt cuts, as Nigeria, Iraq, and the United Arab Emirates are blamed for overproducing.

Oct. 7, 2020: Thanks in part to the oil price crash, ExxonMobil, which lost tens of billions of dollars over the year, is surpassed by Florida utility company NextEra as the top US energy company by market capitalization.

Nov. 9, 2020: Oil company stocks and the oil price jump after Pfizer announces successful trials of a Covid-19 vaccine.

Dec. 3, 2020: OPEC+ members decide to bring an additional 500,000 barrels per day back into production through March.

Jan. 5, 2021: Saudi Arabia backtracks and volunteers to cut 1 million barrels per day, even as Russia and Kazakhstan forge ahead with increased production.

Feb. 8, 2021: The oil price returns to pre-pandemic levels for the first time.

Feb. 11, 2021: OPEC forecasts that in 2021, oil demand will recover a little more than half of what it lost in 2020. The forecast is 110,000 barrels per day lower than its earlier outlooks, as the slow pace of vaccination indicates a prolonged economic recovery.

March 2, 2021: US gasoline demand rises to its highest level since the pandemic began. Gas prices have been rising for two straight months, a sign that supply cuts have paid off for producers.

OPEC’s meeting this week will show how close the group thinks it is to being out of the woods. Rystad’s Tonhaugen thinks another 500,000 barrels per day increase is likely—even though, he writes, that kind of bump will probably cause the price to dip yet again.