Oil closes 2021 with biggest annual gain in more than a decade

Oil posted its strongest annual gain since 2009, as the rollout of vaccination accelerated the reopening of economies, boosting global consumption while crude production returned to a more moderate pace.

West Texas Intermediate grew 55% for the biggest annual gain in over a decade. Brent, the global benchmark, rose 50%, the biggest gain since 2016. Investors are now trying to gauge the outlook for energy demand over the coming year as the latest variant of Covid-19 is spreading rapidly and OPEC will meet with allied producers next week to discuss exit policy.

US crude also ended the year with the longest streak of consecutive quarterly increases since 1983. Omicron’s discovery in late November briefly rocked markets and threatened to reverse the recovery, but crude recovered as a result. as demand seemed to resist the rise in infections.

The continued optimism for the recovery is reflected in the structure of the market, with the benchmark Brent’s rapid spread in an upward shift of 43 cents per barrel from a bearish contango less than two weeks.

“Crude oil had an excellent year 2021, supported by the continued decline in oil inventories benefiting from the recovery in demand and an oil supply lagging behind the growth in demand,” said Giovanni Staunovo, analyst commodities at UBS Group AG. However, by 2022, “the oil market remains dependent on OPEC + oil”.

The Organization of the Petroleum Exporting Countries and its allies, including Russia, will meet early next week to decide production levels for February. The group is gradually restoring closed capacities, generally in monthly installments of 400,000 barrels per day. OPEC will also select a new secretary general.

The oil rally in 2021 was also due to an energy crisis, sparked by shortages of natural gas and coal earlier this fall. Soaring gas prices have resulted in increased demand for alternative power generation in Europe and Asia as northern hemisphere winter approaches.

A positive sign for demand, official data released on Friday showed China’s manufacturing sector continued to expand in December. The manufacturing purchasing managers index rose to 50.3, beating the median estimate of 50.

Julia Fanzeres and Devika Krishna Kumar, Bloomberg

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