Crude oil prices rose in 2021 as global demand for crude oil outpaced supply
Source: US Energy Information Administration chart, based on data from Refinitiv
Crude oil prices rose in 2021 as rising COVID-19 vaccination rates, easing pandemic-related restrictions and a growing economy led to faster global demand growth oil than oil supply. The spot price of Brent crude oil, a global benchmark, started the year at $50/bbl (b) and peaked at $86/bbl at the end of October before declining in the final weeks of the year.
Brent’s 2021 annual average of $71/bbl is the highest in the past three years. The West Texas Intermediate (WTI) crude oil price followed a similar trend to Brent and averaged $3/bbl lower than Brent in 2021.
Global oil production has grown more slowly than demand, pushing up prices. The slower production increase was mainly due to OPEC+ crude oil production cuts that began in late 2020. OPEC and other countries, such as Russia, which coordinate production with OPEC (referred to as OPEC+) announced in December 2020 that they would continue to limit production increases throughout 2021 to support rising crude oil prices.
According to our December 2021 Short term energy outlook (STEO), U.S. crude oil production in 2021 was down 0.1 million barrels per day (bpd) from 2020 and 1.1 million bpd from 2019. The cold weather in February and the hurricanes in August contributed to this decline, but it was also the result of the decline in investment by American oil producers since mid-2020.
Rising demand and falling supply for crude oil led to steady drawdowns in global oil and liquid fuel inventories from February through December and contributed to higher crude oil prices. The biggest draw on stocks came in February, when Saudi Arabia imposed a 1.0m bpd cut on production, and the United States experienced extremely cold weather that led to freezing wells and a drop of 1.3 million bpd in crude oil. production.
Drawdowns were also high in June, a month before OPEC+ announced it would start increasing crude oil production each month. We estimated in our December 2021 STEO that oil inventories fell by 469 million barrels worldwide in 2021, likely the largest annual inventory drawdown since 2007.
Main contributor: jimmy troderman