2020 was a rough year for the crude oil market. As the energy demand plunged during the global financial crisis, the price of NYMEX WTI and ICE Brent North Sea crude oil futures dropped. WTI and Brent are the two pricing benchmarks for petroleum. Approximately one-third of the world’s producers and consumers use the WTI price while two-thirds price output and requirements on Brent’s price. Nearby WTI futures fell to a record low of negative $40.32 on April 20, 2020, as there was no capacity to store the landlocked oil. WTI had not traded below zero since NYMEX introduced futures in the early 1980s. Brent declined to its lowest price this century when the price hit $16 per barrel in late April. Brent is seaborn crude, allowing for storage on ocean tankers.
Since then, prices have recovered. Brent moved back the $50 per barrel level in December, and WTI reached the half-century mark on January 5. The United States Crude Oil Fund (USO) tracks the price of a portfolio of NYMEX WTI futures. The United States Brent Oil Fund (BNO) follows Brent’s price higher and lower.
A surprise “gift” from Saudi Arabia on January 5 pushes crude oil through $50
On January 5, Saudi Arabia shocked the crude oil market. After agreeing to a 500,000 barrel per month tapering the 7.7 million barrel per day production cut starting in January 2021, the Saudi Arabian oil minister announced his country would cut output by one million barrels per day as a “gift” to the other world producers. The move allows Russia to increase its production. Nearby NYMEX crude oil futures moved above the $50 per barrel level for the first time since February 2020 on January 5. After trading to a high of $52.75, the nearby futures settled at $52.24 per barrel.