Global oil supply to grow in 2021 and 2022

BUSINESS REPORTER

MUSCAT, MAY 8

Platts Analytics forecasts global oil supply growth of 3.2 million b/d in 2021 and 5.5 million b/d in 2022. “We see a bit stronger growth than a month ago on higher US and Iran outlook,” says Ash Singh, Manager Supply and Production Analytics, S&P Global Platts.

On April 27, Opec+ decided to maintain its production plan from April 1 with the option to correct course in a month if demand recovery falters. Opec+ and Saudi’s gradual addition of supply over the summer when demand is expected to grow much faster will result in significant stock draws.

“Saudi and Opec+ caution are supportive of the market but is also stimulating US activity higher. This has led us to revise US supply higher by 125,000 b/d in 2021 and 150,000 b/d in 2022. We now expect entry to exit growth of 350,000 b/d in 2021 and 1 million b/d in 2022’’, Singh noted.

“Progress on Iran nuclear deal negotiations suggests a faster deal timeline. Framework agreement could come by late May with sanction waivers. Full sanctions relief by Q4 2021’’, he said.

Outlook for global oil demand

Globally, newly confirmed coronavirus cases increased by 824,800/day in the last seven days, a record pace. The sharp deterioration during April was essentially all due to India.

Data on coronavirus fatalities showed that hospitals in emerging economies are in dire situations; in developed economies, deaths are down sharply, suggesting that the worst may be over on the medical front.

In Israel and the UK, following aggressive vaccination campaigns, the spread of the disease has become contained. In the US and Chile (that are among leaders regarding vaccination), a clear relationship between vaccination efforts and the number of new cases has not yet been firmly established. Mobility around retail shops and offices, which correlates with economic output, has improved in the UK, proving that vaccination efforts, are in part, key to the economic turnaround as restrictions are eased.

Mobility in the US has not yet begun to rise appreciably. Mobility in India has weakened substantially in recent periods, showing that the ongoing medical crisis is resulting in major economic difficulties.

Demand in 2021 has been revised down in India, Western Europe and Latin American due to more restrictions stemmed from more waves of Covid-19 but progress in vaccination offers hope.

Platts Analytics forecasts 2021 global oil demand growth at 5.5 million b/d vs. 5.8 million b/d last month. We expect sequential on month global oil demand to grow by 1.7 million b/d in May, 3.1 million b/d in June, followed by 1.9 million b/d and 1.6 million b/d, in both July and August. Cumulatively, global oil demand is expected increase May-to-August by 8.2 million b/d.

Platts Analytics has upgraded the 2022-on-year global oil demand growth to 4.4 million b/d vs. 3.5 million b/d, last month. Upward revisions are mainly for the US, Europe and China.

Relative to 2019 levels, demand will remain down 3.58 million b/d, or 3.5 per cent. Broadly, global demand will have recovered to pre-pandemic levels in 2022, though the notable exception for impairment will continue to be kero/jet, according to Kang Wu, Head of Global Macro and Demand, S&P Global Platts.

Oil Prices

Firmer fundamentals are expected beginning in May with sequential demand increases, according to Richard Joswick, Global Head of Oil Pricing, Operations and Trade Flow Analytics, S&P.

Oil supply growth is expected to lag demand growth with ongoing Opec restraint (on April 27, Opec+ decided to maintain its production plan from April 1). That will require stock draws to cover which are expected to be substantial from May through August, he said.

However, the demand outlook is a bit softer now than a month ago (renewed Covid flare-ups/ lockdowns in several countries) and supply growth for Iran and the US is higher.

Together, that is leading to a somewhat less robust stock draw outlook, he noted, adding: “Platts has tempered its price forecasts accordingly but still expects the next drive for higher prices will likely lead the fundamentals with peaks around mid-year over $70/b.”