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OPEC and shale oil output will need to rise this year to help offset a potential supply squeeze by the year-end as the markets play catch-up with 2019 demand levels, the CEO of Vitol said Jan. 13.
“The market is fast forwarding to a point where demand kind of catches up with where it was in 2019,” Russell Hardy told the Global UAE Energy Forum 2021 organized by Gulf Intelligence. “With that catch-up, we are going to need more OPEC oil and we may need some more shale oil as well, so the market is anticipating that and it’s trying to ultimately get ahead of a potential supply problem later on in the year.”
OPEC+ members, excluding Kazakhstan and Russia, decided to keep their output in February and March steady from January after two days of contentious talks this month. Saudi Arabia, however, surprised the market by announcing a voluntary 1 million b/d cut for February and March that has helped buoy Brent prices to nearly touch $57/b, an 11-month high.
OPEC and its nine allies, led by Russia, decided in December after days of heated negotiations to ease their stringent quotas by a collective 500,000 b/d for January, instead of the originally scheduled 2 million b/d tapering.
Higher demand
Vitol is forecasting oil demand will increase by 6 million-6.5 million b/d in 2021 — “an enormous change,” said Hardy.“Demand, it is going to get covered by additional OPEC+ production,” he said. “Those increases are coming but are coming probably a tad more slowly than we might have anticipated a couple of months ago because of the virus effect here in Europe.”
Several European countries are in lockdown as a resurgent COVID-19 pandemic spreads through the continent.However, the roll-out of the vaccine and a cold winter are offsetting the impact of lockdowns on oil demand and prices.
The US Energy Information Administration revised its crude price forecast higher in its monthly Short-Term Energy Outlook released Jan. 12 amid tightened supply outlooks and upward-trending demand projections.
The EIA now expects Brent crude prices to average at around $52.75/b in 2021, up $4.25/b from its December forecast, and at $53.42/b in 2022, and the WTI spot price to average at around $49.75/b in 2021, up $4/b from its most recent report, and at $49.79/b in 2022.
Source: Platts