Oil Market Report - February 2021

• World oil demand is set to grow by 5.4 mb/d in 2021 to reach 96.4 mb/d, recovering around 60% of the volume lost to the pandemic in 2020. While oil demand is expected to fall by 1 mb/d in 1Q21 from already low 4Q20 levels, a more favourable economic outlook underpins stronger demand in the second half of the year. The incorporation of new data lowered the 2019 baseline by 330 kb/d.
• Global oil supply rose 590 kb/d in January, to 93.6 mb/d, as OPEC+ cuts eased and non-OPEC+ pumped more. In February, global output is set to fall as Saudi Arabia implements a sizeable voluntary cut. The outlook is improving for countries outside the OPEC+ alliance, with an 830 kb/d gain expected in 2021 versus a 2020 loss of 1.3 mb/d.
• Refinery throughputs declined by a modest 110 kb/d in December. 1Q21 runs are expected to fall by 1.8 mb/d y-o-y, but annual growth is set to resume from 2Q21 onwards. Most of the gains will come from the Atlantic Basin, where refinery activity is recovering from a lower base. In 2020, the Atlantic Basin refinery intake fell to 38.7 mb/d, the lowest in IEA records, which started in 1971.
• Global implied stock draws accelerated from 1.56 mb/d in 3Q20 to 2.24 mb/d in 4Q20. In December, OECD industry stocks fell for the fifth consecutive month. A monthly decline of 44.6 mb (1.44 mb/d) left inventories at 3 063 mb, 138.3 mb above their five-year average. Products led the fall. OECD crude stocks were 62.8 mb below the May 2020 peak. January data show continued declines.
• ICE Brent crude futures rose above $60/bbl in early February and the 12-month backwardation breached $4/bbl, returning prices to pre-pandemic levels. Paper markets drove prices higher, reflecting a favourable overall economic outlook for 2H21 and OPEC+ supply cuts. Physical markets have lagged futures as differentials reflect some delays in clearing cargoes.

• World oil demand is set to grow by 5.4 mb/d in 2021 to reach 96.4 mb/d, recovering around 60% of the volume lost to the pandemic in 2020. While oil demand is expected to fall by 1 mb/d in 1Q21 from already low 4Q20 levels, a more favourable economic outlook underpins stronger demand in the second half of the year. The incorporation of new data lowered the 2019 baseline by 330 kb/d.
• Global oil supply rose 590 kb/d in January, to 93.6 mb/d, as OPEC+ cuts eased and non-OPEC+ pumped more. In February, global output is set to fall as Saudi Arabia implements a sizeable voluntary cut. The outlook is improving for countries outside the OPEC+ alliance, with an 830 kb/d gain expected in 2021 versus a 2020 loss of 1.3 mb/d.
• Refinery throughputs declined by a modest 110 kb/d in December. 1Q21 runs are expected to fall by 1.8 mb/d y-o-y, but annual growth is set to resume from 2Q21 onwards. Most of the gains will come from the Atlantic Basin, where refinery activity is recovering from a lower base. In 2020, the Atlantic Basin refinery intake fell to 38.7 mb/d, the lowest in IEA records, which started in 1971.
• Global implied stock draws accelerated from 1.56 mb/d in 3Q20 to 2.24 mb/d in 4Q20. In December, OECD industry stocks fell for the fifth consecutive month. A monthly decline of 44.6 mb (1.44 mb/d) left inventories at 3 063 mb, 138.3 mb above their five-year average. Products led the fall. OECD crude stocks were 62.8 mb below the May 2020 peak. January data show continued declines.
• ICE Brent crude futures rose above $60/bbl in early February and the 12-month backwardation breached $4/bbl, returning prices to pre-pandemic levels. Paper markets drove prices higher, reflecting a favourable overall economic outlook for 2H21 and OPEC+ supply cuts. Physical markets have lagged futures as differentials reflect some delays in clearing cargoes.

The rebalancing of the oil market remains fragile in the early part of 2021 as measures to contain the spread of Covid-19, with its more contagious variants, weigh heavily on the near-term recovery in global oil demand. But fresh support has been provided by a more positive economic outlook for the second half of the year, along with a pledge from OPEC+ to hasten the drawdown of surplus oil inventories. The prospect of tighter markets ahead lifted benchmark crude oil prices to one-year highs in early February, with Brent trading at $60/bbl and WTI at $57/bbl.

Renewed lockdowns, stringent mobility restrictions and a rather slow vaccine roll-out in Europe have delayed the anticipated rebound until the second half of the year. In its January update, the International Monetary Fund raised the global GDP growth forecast for this year to 5.5% from 5.2% as the robust recovery in manufacturing activity and stronger growth expectations for the United States offset near-term weakness. In this Report we revise down our global demand estimate for 2021 by 200 kb/d, to 96.4 mb/d, following adjustments to historical data, but growth remains largely unchanged at 5.4 mb/d year-on-year. The forecasts for economic and oil demand growth are highly dependent on progress in distributing and administering vaccines, and the easing of travel restrictions in the world’s major economies.

Amid the uncertain outlook for oil demand, OPEC+ has reiterated its readiness to help eliminate the massive oil stock overhang that built up last year. Inventories have been steadily declining since 3Q20 but end-December OECD stocks were still 140 mb above their five-year average. The current production policy of the group calls for most members to hold supply steady through March, while Saudi Arabia has promised to cut an extra 1 mb/d this month and next. OPEC+ ministers are due to meet in early March to discuss policy for April.

Outside of the OPEC+ group, producers are responding to higher prices, albeit cautiously and from a low level. Led by the prolific Permian Basin, US drilling and completion rates have risen steadily in recent months. While investor guidance published to date suggests operators will stick to financial discipline and reward shareholders in 2021, at current prices there is clearly potential for some producers to respect those engagements and modestly increase their capital expenditures. For now, though, we expect US crude oil supply to hold broadly steady in 2021 at around 11.2 mb/d after falling by 940 kb/d in 2020. Canada, now pumping at record rates, has restored nearly all the volumes shut in at the height of last year’s demand collapse. Total non-OPEC+ supply will rise by 830 kb/d in 2021 versus an annual decline of 1.3 mb/d in 2020.

With demand forecast to rise strongly and still modest growth in non-OPEC supply expected, a rapid stock draw is anticipated during the second half of the year. That sets the stage for OPEC+ to start unwinding cuts even if producers outside the group to ramp up faster than currently projected.

The rebalancing of the oil market remains fragile in the early part of 2021 as measures to contain the spread of Covid-19, with its more contagious variants, weigh heavily on the near-term recovery in global oil demand. But fresh support has been provided by a more positive economic outlook for the second half of the year, along with a pledge from OPEC+ to hasten the drawdown of surplus oil inventories. The prospect of tighter markets ahead lifted benchmark crude oil prices to one-year highs in early February, with Brent trading at $60/bbl and WTI at $57/bbl.

Renewed lockdowns, stringent mobility restrictions and a rather slow vaccine roll-out in Europe have delayed the anticipated rebound until the second half of the year. In its January update, the International Monetary Fund raised the global GDP growth forecast for this year to 5.5% from 5.2% as the robust recovery in manufacturing activity and stronger growth expectations for the United States offset near-term weakness. In this Report we revise down our global demand estimate for 2021 by 200 kb/d, to 96.4 mb/d, following adjustments to historical data, but growth remains largely unchanged at 5.4 mb/d year-on-year. The forecasts for economic and oil demand growth are highly dependent on progress in distributing and administering vaccines, and the easing of travel restrictions in the world’s major economies.

Amid the uncertain outlook for oil demand, OPEC+ has reiterated its readiness to help eliminate the massive oil stock overhang that built up last year. Inventories have been steadily declining since 3Q20 but end-December OECD stocks were still 140 mb above their five-year average. The current production policy of the group calls for most members to hold supply steady through March, while Saudi Arabia has promised to cut an extra 1 mb/d this month and next. OPEC+ ministers are due to meet in early March to discuss policy for April.

Outside of the OPEC+ group, producers are responding to higher prices, albeit cautiously and from a low level. Led by the prolific Permian Basin, US drilling and completion rates have risen steadily in recent months. While investor guidance published to date suggests operators will stick to financial discipline and reward shareholders in 2021, at current prices there is clearly potential for some producers to respect those engagements and modestly increase their capital expenditures. For now, though, we expect US crude oil supply to hold broadly steady in 2021 at around 11.2 mb/d after falling by 940 kb/d in 2020. Canada, now pumping at record rates, has restored nearly all the volumes shut in at the height of last year’s demand collapse. Total non-OPEC+ supply will rise by 830 kb/d in 2021 versus an annual decline of 1.3 mb/d in 2020.

With demand forecast to rise strongly and still modest growth in non-OPEC supply expected, a rapid stock draw is anticipated during the second half of the year. That sets the stage for OPEC+ to start unwinding cuts even if producers outside the group to ramp up faster than currently projected.