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OPEC sees bullish oil market recovery ahead as it readies to ease output cuts

Highlights

Global oil demand to surge to 97.72 million b/d in 2021

Non-OPEC supply will be slower to recover: OPEC

OPEC pumped 22.27 million b/d in June

London — Global oil demand will rebound strongly in the second half of 2020 and throughout 2021, offering OPEC ample room to boost supplies to the market as it recovers from COVID-19, the organization's latest analysis showed.

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The data came as OPEC and its allies are scheduled to ease their production quotas by some 2 million b/d in August, with officials citing new-found optimism in the world economy's prospects.

Related story: Iraq pledges 100% compliance with OPEC+ quota in August: oil minister

In its closely watched Monthly Oil Market Report, released July 14, OPEC revised upward its forecast of 2020 oil demand by 130,000 b/d to 90.72 million b/d.

And in its first 2021 market outlook, OPEC projected oil demand would surge to 97.72 million b/d -– still below pre-pandemic levels but an acute recovery from the hard-hit second quarter of 2020.

"While the market still finds itself in the midst of the crisis, gradual stabilization is expected to begin in H2 2020, leading to a cautious forecast of renewed growth in the year to come," OPEC said in the report.

"Encouraging improvements in economic momentum are assumed to be the driving factors for increasing demand in 2021."

OPEC and 10 allies, including Russia, enacted record 9.7 million b/d production cuts starting in May to rescue oil prices from a devastating crash. Oil prices have responded, with ICE Brent futures more than doubling from historic lows in the teens in April to trade above $42/b in recent days.

The cuts are set to roll back to 7.6 million b/d in August, though officials have said they expect compensation cuts over the next few months by Angola, Iraq, Kazakhstan and Nigeria, and others that violated their quotas in May and June to offset some of the production rise.

A key OPEC+ monitoring committee is scheduled to meet online July 15 to review the plan.

Ministers will be buoyed by the OPEC report, which also revised down slightly its expectations of non-OPEC production for 2020.

The International Energy Agency, which issued its latest forecasts on July 10, is even more bullish, seeing 2020 oil demand at 92.1 million b/d and 2021 at 97.4 million b/d.

OPEC's analysts cautioned, however, that their projections assume that the COVID-19 infections are eventually contained and that governments maintain massive stimulus measures.

For 2021, diesel and gasoline will record their highest year-on-year gains, the report stated, with demand both products forecast to rise by more than 3.8 million b/d. Jet fuel, however, will only partially recovery with growth of 800,000 b/d, as OPEC expects international travel to remain under pressure.

Strong compliance

On the supply side, OPEC expects 61.76 million b/d of non-OPEC supply in 2020, down 30,000 b/d from its estimate last month. For 2021, non-OPEC supply will grow 900,000 b/d, with the US contributing just 240,000 b/d of that, a major drop-off from recent years' surges.

The figures result in the so-called call on OPEC crude coming in at 23.80 million b/d for 2020 and 29.80 million b/d for 2021.

OPEC's 13 members pumped 22.27 million b/d in June, according to an average of secondary sources used by the secretariat to monitor member production.

In all, the 23-country OPEC+ coalition achieved 107% compliance with their committed cuts, according to OPEC data seen by S&P Global Platts.

While the supply and demand fundamentals may appear in the coalition's favor, OPEC+ members will have much work to work down global inventories, which have swelled in recent months.

OECD oil stocks rose relative to the five-year average that OPEC+ has said it is targeting for the fifth straight month, coming in at 3.17 billion barrels -– 209.5 million above the benchmark.

2020 market balances

Q1 2020
Q2 2020
Q3 2020
Q4 2020
2020
Global demand
92.41
81.95
92.22
96.22
90.72
Non-OPEC supply
66.43
60.99
59.47
60.19
61.76
OPEC NGLs
5.35
5.09
5.08
5.13
5.16
Call on OPEC crude
20.63

15.87

27.67
30.90
23.80

2021 market balances

Q1 2021
Q2 2021
Q3 2021
Q4 2021
2021
Global demand
96.25
96.93
97.92
99.71
97.72
Non-OPEC supply
61.61
61.75
62.86
64.46
62.68
OPEC NGLs
5.24
5.24
5.24
5.24
5.24
Call on OPEC crude
29.40
29.93
29.82
30.02
29.80

Source: OPEC Monthly Oil Market Report

Iraq pledges 100% compliance with OPEC+ quota in August: oil minister