The oil market in 2020 was dominated by crisis, and 2021 looks set to be another year of uncertainty and unprecedented challenges. So which issues will most affect global oil demand, supply and refining, and shape the course of the oil market in the year ahead?
We outlined our tally of uncertainties and expectations for 2021 in the report Oil markets 2021: what to watch. Fill in the form for a complimentary copy or read on for an introduction.
Global liquids demand will be defined by the pace of pandemic recovery
In our January short-term demand outlook, we expect global liquids demand to average 96.7 million b/d in 2021, 6.3 million b/d higher than the 2020 annual level. However, two key, interlinked areas will shape the pace and strength of demand recovery in 2021:
• The pace of Covid-19 vaccine distribution
• The pace of global economic recovery
Larger economies currently outpace the rest of the world on vaccine procurement. Countries without their own nationally developed vaccine must procure it from elsewhere, so timelines will vary. In addition, countries are also likely to differ in the levels of vaccination deemed necessary to reopen economic activity and lift mobility restrictions.
Meanwhile, the return of lockdowns in Europe and the resurgence of the virus in the US undoubtedly threaten the pace of global economic recovery. But we could still get back on track if immunisation programmes gather momentum and lockdowns end.
What factors could influence the recovery of international air travel? Read the full report to find out more about what’s driving the oil demand outlook.
Global oil supply: uncertainty will be the core theme in 2021
Uncertainty abounds for the global supply outlook. We’ll be tracking developments in several areas closely this year. This includes:
• OPEC+ production restraint – how much supply comes back
OPEC+ was due to ease its production restraint by 2 million b/d to 5.8 million b/d from January. But in December a complicated agreement was put in place to bring output back in increments to be decided at the start of each month, along with additional voluntary cuts by Saudi Arabia. OPEC+ decisions remain a large uncertainty for this year.
• Lower 48 production – does supply recover?
Oil prices will be a core determinant of Lower 48 production in 2021. Following a wave of multi-billion-dollar acquisitions in H2 2020, we’ll be watching corporate guidance announcements closely to see how ongoing sector consolidation impacts tight oil budgets.
• Upstream spend and project FID – green shoots of recovery?
Global upstream development spend is forecast at around US$300 billion in 2021, similar to last year but down 30% on pre-crisis levels. Sustainability and resilience will be crucial in the wake of the shocks of 2020. Companies will continue their relentless focus on boosting upstream margins via high-grading, cost cutting and efficiency gains, with an emphasis on advantaged assets.
How will US Lower 48 production respond? And how many major project sanctions do we expect in 2021? Find out more in the full report.
Refining faces a tough road to recovery
2020 was a perfect storm for the global refining industry. The coronavirus, oil price crash and restrained production saw global utilisation plummet from over 80% in Q4 2019 to 66% for Q2 2020. Refinery closures or restructuring were a key feature of 2020 across Europe, Asia and the Americas, but did little to lift margins in the face of the collapse in demand.
So, what will we be watching for in 2021? The key drivers of global refining commercial performance are utilisation, product crack spreads and crude differentials. Each is inextricably linked to the pace of global demand recovery. In the case of utilisation, we expect levels to stay low in 2021, so the threat of refinery rationalisation remains.
Could liquid renewables offer some hope to refining sites under pressure? Get the full insight to find out more about our assessment of uncertainties for the year ahead.
Source: Wood Mackenzie