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A faster increase in global oil demand than growth in supply led to oil prices jumping last year, with the average Brent Crude price at $71 per barrel—the highest of the past three years, the U.S. Energy Information Administration (EIA) said on Tuesday.
Rising vaccination rates, reopening economies, and the lifting of mass lockdowns resulted in oil demand outpacing supply last year, pushing oil prices from as low as $50 a barrel at the start of 2021 to an annual high of $86 at the end of October, the EIA notes.
Brent Crude prices have retreated since late October, to end 2021 at $78 a barrel. The international benchmark traded at over $79 early on Tuesday, just as the OPEC+ group started its monthly meeting to decide on oil supply for February. The alliance was widely expected to continue easing the cuts by another 400,000 barrels per day (bpd) next month.
OPEC+ and its policy to restrict supply until demand starts to recover from the 2020 pandemic hit were the key reasons for muted supply response to the growing global oil demand in 2021, the EIA says.
Supply from the United States was also lower than before the pandemic due to the continued restraint in investment in new well drilling by U.S. producers, the Texas Freeze in February, and the hurricane-related shut-ins in August and September, the EIA noted.
U.S. crude oil production is expected to have dropped by 100,000 bpd in 2021 compared to 2020 and by 1.1 million bpd compared to the record output in 2019, according to estimates in the administration’s latest Short-Term Energy Outlook (STEO) from December.
Lower supply growth compared to the rise in demand led to large inventory drawdowns globally between February and December 2021, contributing to higher oil prices.
According to the EIA, petroleum inventories dropped by 469 million barrels globally in 2021, which was likely the largest annual inventory withdrawal since 2007.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com