Last year was marked by a sharp drop in energy demand due to the pandemic. During the months of March, April, and May, the world energy demand dropped significantly as mobility shrank to unprecedented levels.
One of the most dramatic financial charts of last year is the one showing the price of oil settling below zero for the first time ever. It tells much of the developments in the energy markets and the impact the pandemic had.
This year is the year of climbing back from the pandemic disaster. With effective vaccines rolling out, energy demand trends start to pick up. Besides that, the developed world signals a clear shift to green energy policies – a shift embraced by the new U.S. administration.
What to Expect in 2021 from Energy Markets?
Yesterday, Janet Yellen, the newly-appointed U.S. Treasury Secretary, testified in front of the Senate as standard procedure before taking the job. She emphasized the focus in the years ahead will be on green energy projects and even mentioned that Biden’s administration wants to create a robust electric vehicle market. The testimony comes in line with what the Europeans are doing with the Green Deal, as well as with corporations in the private sector issuing green bonds.
The European wind and solar markets are expected to grow by 8%, respectively 13% in 2021 in terms of capacity addition. The investment, estimated at about €60 billion, will mostly come in countries like Ireland, Spain, Portugal, where already most of the current projects run.
When looking at green projects, one must consider the demand side as well, not only the supply side. In other words, the world must be able to consume the surplus in energy, and that may come either from a reduction in fossil fuel consumption or an increase in mobility, or both.
Oil remains the big elephant in the room and will continue to be critical for the energy mix in the decades ago. But for the first time in a while, we see the world’s economic powers coming together and singing in one voice – fighting climate change and favoring investment in green projects.
In 2021, the oil market is expected to tighten. The big unknown remains the U.S. policy on Iran. Should the U.S. come back to the negotiations table on the Iran deal, a couple of million barrels per day will hit the market, meaning that OPEC and friends must adjust the policy again to account for the new quantity.