2021 crude demand to undershoot 2019 on transport sector woes – OPEC

LONDON (ICIS)–A projected rebound in crude oil demand in 2021 is likely to leave consumption substantially below 2019 levels, as continuing transport sector weakness bites into the pace of the recovery, OPEC said on Thursday.

Supported by healthy industrial activity across the world, demand for petrochemicals will remain healthy, said the producing cartel.

Global oil demand is likely to grow by 5.9m bbl/day this year after collapsing by an average of 9.6m bbl/day the previous year, according to OPEC; average demand for 2021 is expected at 96.3m bbl/day.

The oil cartel downgraded expectations for the first six months of 2021 on the back of measures to control surging infection numbers in Europe and high unemployment in the US.

Stronger expectations of a vaccine programme-driven recovery in the second half of the year has led OPEC to up its projections for demand through the third quarter and beyond but, with the bulk of passenger air fleets grounded across much of the world, transport is likely to remain a drag.

“Oil-intensive sectors, especially travel and transportation, will remain disproportionately affected, with a larger negative impact on 2020 oil demand and a lower positive contribution to 2021 oil demand, relative to global economic growth,” OPEC said in its monthly oil report.

Outages caused by the US Gulf polar storm in February have sent refining margins in the region for fuels surging, whereas conditions in Europe weakened, sparking a divergence in sector fortunes by region.

The rebound of non-OPEC crude supply to pre-pandemic levels is also expected to drag past the end of this year, with a forecast increase of 1m bbl/day well below the 2.6m bbl/day contraction seen in 2020.

OPEC’s move to maintain supply curbs is expected to drive an uptick in crude pricing, despite values normalising following an attack by Yemen rebel group the Houthi movement on Saudi crude production capacity last weekend.

“The decision by OPEC+ will result in an extra month of major cuts by the cartel, during the period where demand is expected to start to recover more strongly,” noted ICIS analyst Ajay Parmar.

OPEC crude output dropped by 647,000 bbl/day month on month in February to 24.85m bbl/day, the lowest levels since the third quarter of last year, with cuts of 930,000 bbl/day by Saudi Arabia offsetting modest increases by all but two fellow members.

Moves to limit supply growth indicates the cartel is focused on pricing at present, but future moves by Saudi officials to unwind that the extent of the cuts it has imposed on domestic production could see prices weaken to an extent once more, according to ICIS global crude editor Sophie Udubasceanu.

“Before long, Saudi Arabia will release their 1m bbl/day in the market and, even if they will do so gradually, oil traders may be unforgiving in what I anticipate will be a huge sell-off,” she said.

Front page picture: Passenger jets lined up in California, January 2021; the pandemic’s hit to aviation is set to continue throughout 2021
Source: Jassen Todorov/Solent News/Shutterstock

Focus article by Tom Brown