BAKU, Azerbaijan, Oct.23
By Leman Zeynalova – Trend:
After dropping by around 8 percent in 2020, oil consumption is expected to continue to recover in 2021, rising by around 6 percent, Trend reports with reference to the World Bank (WB).
“However, it will remain 5 percent below its trend prior to the pandemic. Demand will be lower in almost all countries in 2021 than in 2019, with the notable exception of China.
“On the supply side, OPEC+ is expected to ease its production cuts in January, as agreed. Non-OPEC production is also expected to rise, although U.S. output is set to fall due to insufficient investment to offset declines in maturing fields and rapid depletion of shale wells. This is a marked difference from pre-COVID trends; between 2014 and 2019 rising U.S. production accounted for 70 percent of the total increase in global oil production. High levels of inventories are expected to continue to unwind over the forecast, and will keep oil prices below $50 until 2022. Significant levels of spare production capacity among OPEC+ countries further reduce the likelihood of sharply higher prices.
“Risks to the forecast are skewed to the downside. On the demand side, the greatest risk is the duration and severity of the pandemic. An intensifying second wave in the Northern Hemisphere could lead to renewed lockdowns and reduced mobility, which would affect oil demand significantly more than other commodities. Delays to the development and distribution of a vaccine could slow the economic recovery and risk leaving deeper scars on the global economy, further reducing demand for oil.
“On the supply side there are risks in both directions. Production in Libya has started to recover after falling close to zero as a result of internal geopolitical conflict (Libya’s oil output averaged 1.1 mb/d during 2019). To the upside, OPEC+ may choose to extend their production cuts at current levels in January, particularly if the recovery in demand wanes. However, any extension or deepening of cuts is likely to be politically difficult, with many oil-exporting countries facing significant fiscal pressures as a result of the combined impact of the fall in oil revenue and the COVID-19 pandemic.
“Several oil companies have announced changes in long-term strategy, including a significant reduction in investment in new hydrocarbon projects. The long-term impact on prices is less clear-cut. While demand may be lower than previously expected, a sustained reduction in investment in new oil production could result in production shortfalls, particularly if oil demand recovers more rapidly than expected. This could prompt a new price cycle,” reads the WB report.
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