In 2020, we have seen unprecedented and historic turbulence in energy markets. The disruption to normal life caused by the pandemic has had a serious impact on the health and welfare of millions of people.
The International Energy Administrations (IEA) forecasts are as follows:
Oil demand will fall by 8.8 mb/d y-o-y in 2020, a modest 50 kb/d downward revision from our previous Report. Our 2021 demand forecast was revised down by 170 kb/d. This is mainly because of another downgrade for jet fuel/kerosene demand, which will account for around 80% of the overall 3.1 mb/d shortfall in consumption in 2021 versus 2019. In 2021, demand for both gasoline and diesel is projected to return to 97-99% of their 2019 levels.
Global oil supply rose 1.5 mb/d in November to 92.7 mb/d as the US recovered from hurricane shut-ins. In December, production may rise again ahead of OPEC+ increasing its quota by 0.5 mb/d in January. OPEC+ dominates global growth in the near term, with virtually all the 4Q20 gains and 80% in 1Q21. For 2021 as a whole, non-OPEC producers outside OPEC+ are expected to increase output by 400 kb/d after a fall of 1.3 mb/d in 2020.
Global refinery throughputs fell almost 1 mb/d in October mainly due to maintenance and hurricane shutdowns. The seasonal slowdown of refined product demand in the northern hemisphere winter combined with tighter crude oil markets will result in a challenging environment for refiners in the short-term. Estimated product stock draws reached their 2020 peak in October and are expected to slow until the next leg of the demand recovery in 2Q21.
OECD industry stocks fell in October by 55.3 mb (1.78 mb/d) to 3 129 mb, and were 183.4 mb above the five-year average. Observed global stocks fell by 4.1 mb/d. Our analysis suggests that the global crude market will have a stock surplus of 625 mb at the start of 2021 versus December 2019. If we assume that Chinese balances are neutral in 2021, the market will absorb the 183 mb located elsewhere and in July it will move into deficit versus end-2019.
Oil prices have moved rapidly and smoothly from contango to backwardation, based on stronger Asian demand and effective OPEC+ supply management. ICE Brent futures rose $2.46/bbl in November to $43.98/bbl and closed at $49.97/bbl on 11 December. Physical crude price discounts to futures improved in late November and early December. In November, freight costs benefited from a rise of tanker activity for the first time in since May, due to stronger Asian buying.
The IEA said:“We are close to the end of 2020 and Brent futures prices have recently moved above $50/bbl for the first time since early March. Indeed, futures markets have moved into a shallow backwardation looking twelve months ahead. On the other hand, physical barrels have only recently traded close to futures prices, underlining the continued uncertainty that Covid-19 is causing oil demand and market stability.”
