The oil market was exposed to one of the biggest shocks in its history with the outbreak of the Corona pandemic, and the events that coincided with it. The most important of which is the American trade war with its partners, led by China and the European Union, in addition to the uncertainty that prevailed over the global economy in general, which resulted in a sharp decline in prices reaching $ 18.3 a barrel in April of this year, which is the lowest level since June 1999, under the effects of panic that affected the appetite for direct and indirect investment. After the pandemic spread rates stabilized, the market became in conflict between the trends affecting the supply and demand sides, whether by increasing or decreasing, which adds to the uncertainty in the energy market in an unprecedented way.
First: the factors affecting the price at the present time
The oil market – like other markets – is subject to the forces of supply and demand, so that the price is determined in light of all its interactions, but what distinguishes the oil market is that it is considered the largest market at all, as the price is affected by any happening around the whole globe. This is due to the centrality of oil in the global economy, whether as a separate investment market, and a common input in the production of most commodities, or the basic commodity of energy pricing, and finally as the main driver of human activity in general. In 2019, its share was 157.8 EJ (118) (1 followed by 18 zeros) of the total 583.9 EJ used by mankind by approximately 33%. Therefore, it is difficult to list all the factors that affect the price. The most important of these factors are the following.
1- Supply-side
Within the supply side, there are conflicting factors; some of them lead to an increase in supply, and others work in the opposite direction of the trend. The most important developments affecting the supply-side can be summarized in three:
A. Loss of control over Libyan, Venezuelan, and Iranian exports:
The three countries (Libya, Venezuela, and Iran) are beset with unstable political conditions that lead to uncertainty about the amount of exports to the global market, as the three countries in 2019 had about 41.8% of OPEC’s reserves, and their production in July 2020 reached a total of 2.37 million barrels per day, which is less than 2018 that reached an average of 5.85 million barrels. This means that more than half of the production capacity of the three countries are outside the production system for different reasons, namely the US sanctions on Iran and Venezuela and the closure of most oil ports by the National Army in the Libyan Oil Crescent. The following table shows average quantities produced in the three countries between 2018 and 2020:
Table No. (1): Production development from Iran, Libya and Venezuela during the period from 2018 to July 2020


This means that these lost capabilities may return to the market at any time without prior notice, or that the estimate of exported quantities may be incorrect as a result of indirect sales methods, which we may be dealing with specifically in the cases of Iran and Venezuela. An estimate by the US Congressional Research Office announced recently that Iranian exports decreased to 227,000 barrels per day only in May 2020, which was denied by successive reports issued by ship tracking companies such as Tanker Trackers stating that the exported quantities may exceed 600,000 barrels per day.
B- High levels of global stocks:
The supply-side also relates, in part, to the level of strategic stocks in consuming countries. In the event of a decrease in these levels, countries tend to fill them, while in the event of their rise, the reversal of the trend is taken by getting rid of the excess of need, which puts more quantities offered in the market. The last period had witnessed increasing trends from most countries of the world to raise their strategic stocks as a result of low prices to unprecedented degrees, which led to the rise of these stocks to higher than their average during the past five years in the countries of the Organization for Economic Cooperation and Development (OECD), since the beginning of 2020, especially during the three months between April and June 2020. While the maximum level in April during the same period reached 3.05 billion barrels, the level of stocks in April 2020 reached the level of 3.12 billion barrels, with an increase of 71 million barrels. The situation continued during May and June, with an increase reaching 102 million more than the maximum.
Figure No. (1): Stocks of commercial crude oil and other derivatives at the end of the period
The previous figures mean that there is a severe surplus stock that will be disposed of, whether by use or re-supply, which will reduce the demand or increase the quantities offered and, in all cases, will reduce the price.
C- OPEC + Agreements
The OPEC oil-exporting countries and others from outside it, led by Russia, agreed in April 2020 to reduce production by 9.7 million barrels, representing 10% of global production during the April-June period, to control the market and raise prices from the collapse they witnessed with the worsening of the pandemic. This reduction was extended during June and July, provided that production will be reduced by 7.7 million barrels per day until the end of next December. Although the agreement resulted in actual production cuts; however, some countries have violated – and still violate – the reduction agreements, led by Iraq, which allows unplanned quantities in the market to exit.
Table No. (2): Development of production of some of the most important oil-exporting countries


2- Demand side
The demand side is experiencing the same inconsistency that the supply-side witnesses, with larger trends to decline in the foreseeable future.
A- The second wave of Corona:
The first wave of the pandemic outbreak led to a very severe decrease in fuel use as a result of the decline in industry and trade activity in general, which caused the demand for oil to decline. The following figure shows the impact of the first shock of Corona.
Figure No. (2): Global consumption and production of oil, and the impact of the Corona crisis on consumption
The figure shows that consumption decreased sharply in the first quarter of 2020 to 85 million barrels/day, which is less than 101 million barrels during the fourth quarter of 2019.
B- Economic stimulus programs to counter the effects of Corona:
After the first wave of Corona, governments intervened to mitigate its effects on economies, which led to a large volume of spending in the direction of strengthening and restoring the momentum of industrial and commercial activities, which should boost demand for oil. For example, in March and April, the United States of America prepared an aid package of about $ 2.8 trillion, and another package that may be the size of the first is being negotiated, while China provided a package of about $ 367 billion in April, while Japan provided a package of packages about a trillion dollars by the end of April, and so did the European Union by May when it provided an aid package of about $ 860 billion. The stimulus packages were not limited to the fiscal policy side, but also included the monetary policy aspects, and the most important interventions included lowering interest rates and expanding the purchase of bills and bonds, among others.
C- The approaching discovery of the Corona treatment:
The combination of news about the proximity of research institutions to the discovery of the Corona treatment leads to an increase in the demand for oil, especially for futures contracts, which enhances the demand aspects, thus raising the price.
Second – Future Expectations:
With the combination of all the previous factors, most of the expectations, on top of which are the expectations of the US Energy Information Administration, will be that the recovery in demand will start from the third quarter of 2020 before reaching pre-crisis levels by the third quarter of 2021, with the market equilibrating again during the fourth quarter of the year, as shown in the following figure:
Figure No. (3): The US Energy Information Administration forecasts for oil production and consumption in the short term.
Based on these trends, several institutions issued their forecasts for prices during the years 2020 and 2021, as shown in the following table:
Table No. (3): Some international institutions’ forecasts for Brent crude prices in the years 2020-2021


It is clear from the table that all expectations are in the same direction in terms of an upward trend, as the previously mentioned equilibrium increases the price.
From the above, it is clear that the oil market is affected by many political, economic, and even health influences, and that these indicators are basically divided into two axes, supply and demand, and within each of them other sub-factors interact, some of which lead to a reduction in supply or demand. However, the sum of all these basic and sub-indicators indicates a market recovery starting from the third quarter of 2020, before the market reaches an equilibrium point by the end of 2020, which is what is expected to increase prices in 2021 to be more than this year.