The Covid-19 pandemic has devasted crude and condensate demand in 2021, creating massive supply surpluses and filling up inventories, causing producers to slash their output in order to keep prices at somewhat profitable levels. Rystad Energy’s latest balances, however, show that 2021 could offer producers a window of opportunity, as monthly supply deficits may reach their highest level in years.
Although crude and condensate supply will still exceed demand in 1Q21, Rystad Energy expects that vaccination campaigns will help bring a rapid recovery going forward. Monthly supply deficits will start from May, reaching a high of around 3.4 million bpd in August. As deficits continue uninterrupted through the year, August’s high could be repeated, if not exceeded by year-end.
Entering 2021, Rystad Energy expects a largely balanced market in January, with supply and demand hovering between 77.7 and 77.8 million bpd. The effect of global lockdowns will be felt even more in February and March as demand will not follow the growing supply and will stay limited at 77.9 million bpd and 77.4 million bpd respectively, creating a surplus of 0.5 million bpd in February and 1.4 million bpd in March. A minor surplus will also be recorded in April but the market will recovery shortly after.
It is important to highlight that Rystad's current supply base case assumes the terms of the latest OPEC+ agreement stay unchanged and the group’s production remains flat after January. Rystad also assumes a stellar compliance within OPEC+ going forward, as well as limited upside to US supply and Iran coming back only in 2022.
“Our monitors in the US are starting to point out at stronger activity. As we have warned our clients before, shale is a monster than you can slowdown, but you can’t kill. In addition, there are winds of change forecasted in the geopolitical realm next year,“said Bjornar Tonhaugen, Head of Oil Markets at Rystad Energy.
There is always room for deviation from projections, especially in such a volatile environment as policies can change. The coming deficits will create extra room for OPEC+ to hike production from May 2021 versus Rystad's base case, which in turn can affect monthly balances. OPEC+ output, as usual, will have to fight for market share with US shale, which is currently turning a corner with increased activity.
