IEEJ：May 2021©IEEJ 2021
Special Bulletin
A Japanese Perspective on the International Energy Landscape (531)

May 7, 2021

January-April Average at $62.31/bbl for Brent, $59.05/bbl for WTI
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanThe average daily closing price of the front-month futures contract from January throughApril 2021 came to $62.31 per barrel for Brent and $59.05/bbl for West Texas Intermediate. Fromthe same period last year, Brent rose by $17.47/bbl or 39% and WTI by $20.63/bbl or 54%. Thehighest price in the four months stood at $69.63/bbl for Brent on March 11 and at $66.09/bbl for
WTI on March 5. The lowest was $51.09/bbl for Brent and $47.62/bbl for WTI on January 4. The
gap between the highest and lowest levels came to about $18/bbl for both Brent and WTI, indicatingthat their prices fluctuated within a fairly wide range.
Compared with the peak and bottom levels in the same period last year, however, WTI
posted an extremely steep increase of about $100/bbl from the abnormal level of minus $37.63/bbl,
the first ever negative price, on April 20 last year. Brent scored a rise of about $50/bbl. Pricefluctuations in the first four months of this year were far more moderate than in the past one year. In
the four months, oil futures prices continued a moderate uptrend from the lows on the first trading
day of this year. Brent rose back above $60/bbl on February 8 and retained an uptrend for one month
until hitting the high of $69.63/bbl on March 11. It fell back to $61.95/bbl on March 25 before
rallying above $65/bbl in mid-April. Since February 8, Brent has stayed above $60/bbl, indicating an
extremely stable price trend.
Various factors have been present behind the oil price trend. I think that the key phrase
would be the delicate balance of various market-moving forces.
First, we must pay attention to forces regarding a global economic recovery. Undoubtedly,
the global economy has been recovering from the grave damage inflicted by the COVID-19
catastrophe. While the damage and recovery have differed by country or region, the global economy
is destined to post positive growth in 2021 in a recovery from a 3.3% contraction in the previousyear. In a manner to reaffirm the recovery trend, global economic growth projections for 2021 havebeen revised upward. In an update in April to its World Economic Outlook published in January, theInternational Monetary Fund raised its global economic growth projection from 5.5% to 6.0% for2021. The global economic recovery has undoubtedly contributed to pushing up and supporting oil
prices since the beginning of the year.
The global economic recovery and the upward revision of economic growth projections
have been closely linked to a departure from COVID-19. In a symbolic development, the spread ofvaccination and hopes on its effects has brought about a bright outlook for the global economic
recovery. In reality, however, the world still sees the serious impacts of the third or fourth
COVID-19 infection waves. In Japan, Europe and India, the situation has remained serious. Whilevaccination has made progress, the serious spread of COVID-19 infections has continued with nosign of an end to the pandemic seen. This is one of the drags on the global economy and the crude oilmarket.
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From a different perspective, the impacts of unprecedented fiscal expansion and monetaryeasing that have played a key role in the global economic recovery are important. In a bid toreconstruct their economies devastated by the COVID-19 pandemic, countries have continued
unparalleled fiscal expansion and monetary easing, which have successfully allowed the global
economy to get on a recovery path. At the same time, markets have been flooded with money,
leading massive money to flow into risk asset markets. The economic recovery and massive money
inflow have allowed stock markets to continue an uptrend. On the New York stock exchange, theDow Jones industrial average has retained an uptrend, rising from around 30,000 at the beginning of
the year to levels above 34,000 in the second half of April. It has continued to rewrite its record high.
Massive money inflow has been seen not only in stock markets but also in other risk asset markets
including crude oil futures markets. The crude oil price hike in the first four months of this year hasbeen supported partially by such money inflow, analysts say.
If risk asset price hikes are excessive, however, market participants would have to become
conscious of the risk of reactionary drops or steel price falls. On May 6, the U.S. Federal Reserve
Board published a report warning against the risk of steep declines in stock and other asset prices.
Amid unusually prolonged monetary easing, the report pointed to the significance of sensitive
monetary policy management. We must pay much attention to future asset market trends. The
growing risk consciousness as one of the financial market forces will exert influence on market
trends.
Second, we must pay attention to the U.S. oil production trend as one of the forces
exerting direct impacts on the oil market supply-demand balance. Over the past decade, shale andother U.S. oil production has served as balancer. When crude oil prices were high, U.S. oilproduction increased to ease the supply-demand balance. When oil prices were low, it declined toinvite rebalancing and a tighter supply-demand balance. When crude oil prices stably stayed above$50/bbl late last year, U.S. shale oil production was expected by some market participants toincrease again to hold down further oil price hikes. In reality, however, U.S. oil production has failed
to remarkably increase even as oil prices have surpassed $60/bbl.
This may be because U.S. shale oil producers have changed their behavior or production
patterns to give priority to quality (profitability) rather than quantity (production expansion) andrefrain from desperately rushing to increase production, according to a dominant view in the oilindustry. Behind such trend may be the emphasis on the profitability of financing for shale oildevelopment. Unexpectedly slow growth in U.S. oil production might have contributed to oil prices’
uptrend this year. However, no optimism can be warranted about future developments. If crude oil
prices remain above $60/bbl over a certain period of time, U.S. shale oil production will begin toincrease. Such development would not be inconsistent with shale oil producers’ new attitude ofgiving priority to profitability. We will have to closely watch the balance of various forces regarding
shale oil production.
Third, I must point to production cuts by the Organization of the Petroleum ExportingCountries and non-OPEC oil producing countries, known as the OPEC-plus group that has served as
the most important balancer. Among forces that led the oil market to rebalance from oversupply thatbrought about oil prices’ steep declines including a plunge into negative territory in 2020, the record
OPEC-plus production cuts have played the most important role. The group has continued theproduction cuts since May last year and recently begun to gradually narrow the cuts. As well as theOPEC-plus group, its leader Saudi Arabia has implemented an independent production cut of which2

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the effect is important. The OPEC-plus group and Saudi Arabia will continue to adjust the oil
supply-demand balance while watching the global economic recovery trend, the fate of theCOVID-19 pandemic, the impacts of financial factors and the U.S. shale oil production trend, ascited above. The adjustment will remain the most important factor exerting influence on the market
balance and oil prices.

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