IEEJ：March 2021©IEEJ 2021
Special Bulletin
A Japanese Perspective on the International Energy Landscape (522)March 3, 2021

January-February Average Brent Price Rose Close to $60/bbl
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, JapanThe average daily closing price of the front-month Brent oil futures contract in January
and February 2021 rose by about $15 per barrel or 36% from the 2020 average of $43.21/bbl to$58.78/bbl. That of the front-month West Texas Intermediate contract in the period also increased byabout $16/bbl or 41% from the 2020 average to $55.58/bbl. Brent closed at $60.56/bbl on February 8and WTI finished at $60.05/bbl. They rose back above $60/bbl for the first time in 13 months fromJanuary 2020.
Both Brent and WTI have crept up since the beginning of this year. WTI stood at around$47/bbl in the beginning of the year and rose above $50/bbl on January 6. It took some one month togo up above $55/bbl on February 3 and it topped $60 on February 16. Its peak in the first twomonths of the year was $63.53/bbl on February 25. In fact, the uptrend since the turn of the year
started in the second half of last November. Until then, WTI remained around $40/bbl for about fivemonths from last July. In this way, WTI entered an uptrend last November and has recently topped$60/bbl. Its peak of $63.53/bbl was the highest in 22 months from late April 2019.
Under the COVID-19 disaster, WTI slackened throughout 2020, plunging to theunprecedented low of minus $37/bbl. Its rise to the present levels has been supported by a complex
combination of some key factors.
The first important factor is COVID-19 vaccination that has brought about hopes of an end
to the COVID-19 pandemic and global economic recovery. The current uptrend started lastNovember when COVID-19 vaccination began with vaccines approved in the world. Since then,vaccination has made progress mainly in Western advanced economies. Israel has completed first
vaccine doses for more than 50% of its population. The vaccination’s effects including those against
variant COVID-19 viruses, as well as adverse events related to the vaccination, have still remained
uncertain, but progress in vaccination has led hopes to grow on the effects. In reality, the pandemic isstill expanding, infecting more than 110 million people and killing more than 2.5 million in theworld. However, it is increasingly expected and hoped that the pandemic would come to an end as
vaccination makes further progress.
In such situation, hopes of global economic recovery are growing. The latest world
economic outlook by the International Monetary Fund, released in January, forecasts that global
GDP would grow 5.5% in 2021 after contracting 3.5% in 2020. In all countries including such
advanced economies as the United States, European countries, and Japan, GDP contracted
substantially in 2020 and is expected to grow steeply in 2021. While it is still uncertain whether theglobal economy would achieve a smooth V-shaped recovery, hopes of the pandemic’s end andeconomic recovery are undoubtedly growing.
Mirroring the growing hopes of economic recovery has been the stock market. The Dow1IEEJ：March 2021©IEEJ 2021
Jones industrial average on the New York stock exchange entered an uptrend along with crude oil
prices around last November and topped 30,000 in December for the first time. Hopes placed on theincoming Biden administration were combined with expectations on an end to the pandemic. The
average topped 31,000 in January and sustained an uptrend until February 24 when it hit an all-timehigh of 31,962. In Japan where the stock market has retained an uptrend, the 225-issue Nikkei
average on the Tokyo Stock Exchange rose back above 30,000 on February 15 for the first time in 30
and a half years.
Such stock market upsurge has led to hopes of real economic improvements and risingdemand for energy including oil. Hopes of an end to the pandemic also lead to those of risingtransportation demand that would trigger a full-blown pickup in oil demand. Market players havegrown conscious of such hopes. Even more important for the oil price uptrend than such oil
demand-boosting effects have been financial factors such as excessive liquidity and a subsequent
rise in appetite for risk assets, which have underlain the stock market upsurge.
As the COVID-19 disaster plunged the global economy into the worst situation since theGreat Depression, countries stepped up fiscal expansion and monetary easing on an unprecedented
scale to support and boost their economies. The powerful monetary easing has not only supported
economic activities but also brought about remarkable interest rate drops and excessive liquidity ormoney supply. Surplus money has gone into the stock market to support the abovementioned stock
price upsurge. At the same time, surplus money has apparently flown into other risk asset markets
including the oil futures market. Attention should be paid to such financial factors that have boosted
stock and oil prices.
The second important factor behind the oil price uptrend is joint oil production cuts by theOrganization of the Petroleum Exporting Countries and some of the non-OPEC oil-producing
countries including Russia. In response to “oil demand evaporation” under the COVID-19 pandemic
in 2020, the OPEC-plus group has implemented record production cuts. Since the second half of2020, the group has gradually narrowed the cuts in view of oil market supply and demand, but thejoint production cuts have functioned well. At the group’s meeting early this year, Saudi Arabia
made a surprise offer to unilaterally reduce its oil production by 1 million barrels per day, which has
also supported oil prices. As hopes of global economic and oil demand recovery have grown, theOPEC-plus group’s joint production cuts and Saudi Arabia’s additional cut have successfully
supported the oil price uptrend.
In the future, however, the oil price uptrend cannot necessarily be expected to continue.
This is because the factors supporting the uptrend have some uncertainties. While hopes of an end to
the pandemic are high and are expected to come true, there are uncertainties about when or how fast
the pandemic would go in the direction of the end. Even in advanced economies where vaccination
is making progress, carelessness could make it difficult to control infections again. Hopes ofeconomic recovery are high, as reflected in the stock market upsurge. However, financial factors
have contributed much to the stock and oil price upsurge. We must watch how firmly the global
economy would actually recover. Regarding oil supply, crude oil prices’ rise above $60/bbl isencouraging U.S. shale oil production to increase. The International Energy Agency in its February
oil market report revised its U.S. oil production projection in 2021 up by 0.31 million bpd from theprevious report to 16.55 million bpd, close to the 2020 level. Given crude oil price hikes in thesecond half of February, the projection may be raised further. On the other hand, the OPEC-plus
group could narrow its production cuts in response to crude oil prices’ rise above $60/bbl. While theOPEC-plus group continues to adjust production to maintain an appropriate supply-demand balance,
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IEEJ：March 2021©IEEJ 2021
oil price hikes could lead some group members to be tempted to increase production. Towards thesecond half of this year, we see numerous destabilization factors including the possibility of Iran’s
comeback to the international oil market. Crude oil prices have risen faster than assumed in thehigher price scenario in an IEEJ outlook released late last year, but we will have to pay attention totheir future trend.
Contact: report@tky.ieej.or.jp
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