Oil Price Forecast 2020–2050

How the COVID-19 Pandemic Will Affect Oil Prices in 2020 and 2021

Oil workers using chain to position drill on drilling platform
••• Tyler Stableford / Getty Images

Internationally, Brent crude oil prices averaged $50 per barrel (/b) in December, up $7/b from November's average. They're projected to average $53/b in 2021, according to the U.S. Energy Information Administration's (EIA) Short-Term Energy Outlook released on January 12.

Brent crude oil prices started strong in 2020, averaging $64/b in January. But they plummeted in the second quarter, closing as low as around $9/b in April, when the price of West Texas Intermediate (WTI) at Cushing in the United States fell to an unprecedented negative price of around -$37/b. Brent prices averaged above $40/b by June and have continued to do so in the months since.

The COVID-19 pandemic has drastically reduced global oil demand. Beginning in January 2020, many governments restricted travel and closed businesses to stem the outbreak.

A drop in demand from the pandemic was worsened by a supply glut. OPEC and its members had been abiding by an agreement to limit production until March 31, 2020. At the March 6, 2020 OPEC meeting, Russia announced it would no longer restrict production as of April 1. In response, OPEC announced it would also increase production.

As storage facilities filled, prices plummeted into negative territory. No one wanted the delivery of oil because there was hardly any place to store it. In April 2020, prices for a barrel of oil fell to as low as around $9 internationally for Brent crude oil and -$37 in the U.S. for WTI at Cushing. On April 12, 2020, OPEC and Russia agreed to lower output to support prices. That sent prices back into the positive range.

Key Takeaways

  • The EIA forecast that Brent crude oil prices will average $53/b in 2021.
  • Oil prices started strong this year at $64/b in January.
  • Prices plummeted in the second quarter, with one day in April even closing at $9/b for Brent prices internationally and -$37/b for WTI at Cushing in the U.S.
  • The demand for oil has dropped because of the coronavirus pandemic.

WTI vs. Brent

There are two grades of crude oil that are benchmarks for other oil prices. These are the WTI at Cushing and North Sea Brent. 

WTI at Cushing comes from the U.S. and is the benchmark for U.S. oil prices. North Sea Brent oil comes from Northwest Europe and is the benchmark for international oil prices.

The EIA forecasts that WTI prices will average around $50/b in 2021 and 2022. High global oil inventory and surplus oil production capacity are expected to limit oil price increases in 2021.

Four Reasons for Today’s Volatile Oil Prices

Oil prices used to have a predictable seasonal swing. They spike in the spring, as oil traders anticipate high demand for summer vacation driving. Once demand peaks, prices drop in the fall and winter.

Oil prices have become volatile thanks to unexpected swings in the factors affecting oil prices. The coronavirus pandemic has sent demand for oil plummeting. That has offset the three other factors affecting oil prices: rising U.S. oil production, the diminished clout of OPEC, and the strengthening dollar. 

1. Slowing Global Demand

The EIA estimates global oil and liquid fuels demand was 92.2 million barrels per day (b/d) in 2020. That's down by 9 million b/d from 2019. It expects demand to increase by 5.6 million b/d in 2021 and 3.3 million b/d in 2022.

2. Rising U.S. Oil Production

U.S. producers of shale oil and alternative fuels, such as ethanol, increased supply. They increased supply slowly, supporting prices high enough to pay for exploration costs. Many shale oil producers became more efficient at extracting oil. They found ways to keep wells open, saving them the cost of capping them. This ramp-up began in 2015 and has affected supply ever since.

In August 2018, the U.S. became the world’s largest oil producer. In September 2019, U.S. crude oil production increased to an (at that time) record 12.1 million b/d. It was the first time since 1973 that the U.S. exported more oil than it imported. U.S. crude oil production reached 11.2 million b/d in November 2020, up from 10.9 b/d in September owing to hurricane-related production increases in the Gulf of Mexico. It's estimated that it fell to 11.3 million b/d in 2020 and will fall to 11.1 million b/d in 2021, down from 12.2 million in 2019. It's expected to increase to 11.5 b/d in 2022.

3. Diminished OPEC Clout

U.S. shale producers have become more influential, but they don’t operate as a cartel as OPEC does. To maintain market share, OPEC has not cut output enough to put a floor under prices.

OPEC’s leader, Saudi Arabia, wants higher oil prices because that’s the source of its government revenue. But it must balance that with losing market share to U.S. and Russian companies. 

Sunni-led Saudi Arabia also doesn’t want to lose market share to its archrival, Shiite-led Iran. The 2015 nuclear peace treaty lifted 2010 economic sanctions and allowed Saudi Arabia's biggest rival to export oil again in 2016. But that source dried up when President Donald Trump reimposed sanctions in 2018.

4. Rising Dollar Value

Foreign exchange traders have been driving up the value of the dollar since 2014.

Many traders use the dollar as a safe have investment during times of economic uncertainty.

For example, the dollar’s value rose by 30% between 2013 and 2016 in response to the Greek debt crisis and Brexit. Between March 3 and March 23, 2020, it rose 8.4% in response to the coronavirus pandemic.

All oil transactions are paid in U.S. dollars. Most oil-exporting countries peg their currencies to the dollar. As a result, a 25% rise in the dollar offsets a 25% drop in oil prices. Global economic uncertainty keeps the U.S. dollar strong.

Oil Price Forecast 2025 and 2050

The EIA predicted that, by 2025, Brent crude oil's nominal price will rise to $69/b.

This long-term annual forecast was done early in the coronavirus pandemic.

By 2030, world demand is seen driving Brent prices to $76/b. By 2040, prices are projected to be $90/b. By then, the cheap oil sources will have been exhausted, making it more expensive to extract oil. By 2050, oil prices will be $105/b, according to the EIA's Annual Energy Outlook.

The EIA assumes that demand for petroleum flattens out as utilities rely more on natural gas and renewable energy. It also assumes the economy grows around 2% annually on average, while energy consumption decreases by 0.4% a year. The EIA also has predictions for other possible scenarios. 

Could Oil Really Reach $200 per Barrel?

Although it seems ludicrous now, there are situations that could put oil prices at $200/b. The EIA forecast Brent oil prices of $105/b in 2050 if the cost to produce oil drops and it crowds out competing energy sources, but economic conditions could drive the price even higher.

In July 2008, oil prices reached a record high of around $133/b. They dropped to around $40/b in December before rising to $123/b in April 2011. The Organization for Economic Cooperation and Development (OECD) previously forecasted that the price of Brent oil could go as high as $270/b. It based its prediction on skyrocketing demand from China and other emerging markets.

Oil prices at $200/b could change consumer consumption. Using oil as an energy source has caused climate change.

Carbon taxes have been dismissed as a way to stop climate change. Critics say they would raise oil prices too high, imposing a regressive tax on the poor.

The OECD said that high oil prices result in "demand destruction." If high prices last long enough, people change their buying habits. Demand destruction occurred after the 1979 oil shock. Oil prices steadily deteriorated for years. They finally collapsed after continued demand decline, when supply caught up.

The idea of oil at $200/b seems catastrophic to the American way of life, but people in Europe were paying high prices for years due to high taxes. As long as people have time to adjust, they will find ways to live with higher oil prices.

Article Sources

  1. U.S. Energy Information Administration. “Short-Term Energy Outlook.” Accessed Jan. 12, 2021.

  2. U.S. Energy Information Administration. "Europe Brent Spot Price FOB - Monthly." Accessed Jan. 12, 2021.

  3. U.S. Energy Information Administration. "Petroleum and Other Liquids: Cushing, OK WTI Spot Price FOB - Daily." Accessed Jan. 12, 2021.

  4. U.S. Energy Information Administration. "Petroleum and Other Liquids: Europe Brent Spot Price FOB - Daily." Accessed Jan. 12, 2021.

  5. U.S. Energy Information Administration. "OPEC Shift to Maintain Market Share Will Cause Global Inventory Increases and Lower Prices." Accessed Jan. 12, 2020.

  6. OPEC. "The 10th (Extraordinary) OPEC and Non-OPEC Ministerial Meeting Concludes." Accessed Jan. 12, 2021.

  7. U.S. Energy Information Administration. “The United States Is Now the Largest Global Crude Oil Producer.” Accessed Jan. 12, 2021.

  8. U.S. Energy Information Administration. “U.S. Petroleum Exports Exceed Imports in September.” Accessed Jan. 12, 2021.

  9. Federal Reserve Bank of St. Louis. “Trade Weighted U.S. Dollar Index: Broad, Goods and Services.” Accessed Jan. 12, 2021.

  10. U.S. Energy Information Administration. “Annual Energy Outlook 2020,” Click "Table 1. Total Energy Supply, Disposition, and Price Summary." Scroll to "Prices (nominal dollars per unit): Brent Spot Price." Accessed Jan. 12, 2021.

  11. U.S. Energy Information Administration. "EIA Projects U.S. Energy Intensity to Continue Declining, But at a Slower Rate." Accessed Jan. 12, 2021.

  12. Organization for Economic Cooperation and Development. “The Price of Oil: Will It Start Rising Again?” Page 27. Accessed Jan. 12, 2021.

  13. Federal Reserve History. "Oil Shock of 1978-1979." Accessed Jan. 12, 2021.