Wood Mackenzie’s latest outlook report has show that the art of balancing oil markets and the refining sector in 2021 hinges upon three major themes – OPEC+ production, COVID-19 developments and the energy transition
Following 2020’s unprecedented oil demand shock amid the COVID-19 pandemic, Wood Mackenzie expects 2021 total liquids demand to average 96.7 mmbbl per day, 6.3 mmbbl per day, higher than the 2020 annual level.
Wood Mackenzie vice-president Ann-Louise Hittle said, “Our short-term forecast assumes vaccine distribution accelerating through 2021 and is underpinned by 5% expected growth in global GDP, according to our macroeconomic outlook, following the global economy’s 5.4% contraction last year.”
On the supply side, all eyes will be on OPEC+’s plan to ease production restraint. The group was due to ease its production restraint by two mmbbl per day to 5.8 mmbbl per day as of January 2021. But that has been waylaid by a complicated agreement made in December to bring output back in increments to be decided at the start of each month, along with the February-March additional voluntary cuts by Saudi Arabia.
Hittle said, “We are assuming output gradually rises from April as the group obtains the planned 5.8 mmbbl per day restraint level by Q3 2021. But OPEC+ decisions are a huge uncertainty for this year. Can OPEC+ negotiate deals each month and remain committed to production restraint? Some production restraint is needed in 2021 for market balance, but compliance could wane with demand recovery.”
Over at US Lower 48, Hittle predicts that output will decline by around 500,000 bpd in 2021 on a year-on-year basis, a more moderate rate than in 2020. Rig activity is expected to continue to rise but much of the recovery rate is dependent on oil prices and the industry’s willingness to spend on volume growth again.
2021 refinery utilisation will remain low
Even with demand projected to increase strongly, 2021 refinery utilisation will remain low, hence the threat of refinery rationalisation remains. Over one million b/d of refining capacity will be completed in the Middle East and Asia this year; it remains to be seen if these new-build sites might prompt further rationalisation in Europe and across Asia.
Vice-president Alan Gelder said, “In 2020, there was a surge in product stocks, particularly for middle distillates given the collapse in jet demand. High product stocks will slow the recovery in pricing, but will stocks return to prior levels?
“A rapid recovery in gasoline demand could lead to weak distillate prices as gasoline demand will set refining runs. The relative recovery in demand between products is important to watch. However, any material increase in crude runs will weaken the pricing of high sulphur fuel oil as its current high price reflects limited supply.”
