Line chart shows a volatile relationship between Brent oil prices vs. global oil demand/supply balance.
Left y-axis: Global demand growth minus supply growth (%) YoY (12-month average); right y-axis: Brent crude price (U.S. dollars per barrel); x-axis: 2002 – 2021
Brent crude rises from about $19 per barrel in 2002 to a peak of roughly $140 per barrel in 2008. Since then the price has fluctuated considerably, ending at about $66 per barrel by year-end 2019. From there it fell sharply to less than $23 by March 2020, eventually recovering somewhat to nearly $52 by year-end 2020. As of Q3 2021 it stood above $78. Global demand growth minus supply growth also fluctuated, beginning at about 1.00% in 2002 and ending just under 0.99% at the end of November 2020. As of late August 2021 it had increased dramatically to about 5.6%.
Historically, global demand growth minus supply growth rose to seven peaks during this time period, in 2003 (over 1.02%), 2008 (over 1.02%), 2011 (about 1.02%), and 2018 (about 1.01%), (about 1.01%), and 5.6% (2021). Each of the first six of these peaks was followed by steep declines, about 0.99% (2005), 0.99% (2009), 1.00% (2012), about 0.98% (2016), about 0.99% (2019), and 0.97% (May 2020).
Sources: Bloomberg, Energy Information Administration, and Wells Fargo Investment Institute. Brent crude oil: monthly data from January 1, 2002 to September 30, 2021. Global demand/supply growth: monthly data from January 1, 2002 to August 31, 2021. YoY = year-over-year.
Key Takeaways
- The rate of change of demand growth versus supply growth has had a strong influence on oil prices.
- Global oil producers have been hesitant to bring extra production back so far in 2021. Combined with persistently growing demand, we suspect oil prices could spend much of the next two years above $70 per barrel.