NSR H1 2021 Excerpts - Crude Oil - The Journey to Re-balance the Oil Market
Nigeria Strategy Report – H1 2021 Excerpts
Global Economy and Markets
- In this report, we review major drivers in Global oil markets in H2 2020 and convey our outlook for the rest of 2021.
- At the start of H2 2020, we made a downward revision to our 2020 oil price forecast by 35.71% to close at $40.5. The twin shocks of the COVID-19 pandemic and oil price war in H1:2020 hit the global oil market with a blow it is yet to fully recover from. Our forecast was hinged on an expected increase in demand as lockdowns eased and consumption levels begins to recover. Historic production cuts by OPEC+ and insistence for improved quota adherence helped keep oil prices afloat. In the second half of the year, the impact of the cuts began to crystalize gradually, as Brent crude rose by 10.05% from June to August. However, whilst lockdowns in parts of the US, China, United Kingdom, and Africa began to ease, fears of a second wave remained a source of bearish sentiment amongst traders.
- We forecast the oil market will switch into a deficit in 2021, with net deficit expected at 0.67MMbpd. With improved economic activity, we expect global demand to gradually move closer to pre-pandemic levels of c.100MMbpd. Hence, in line with EIA’s forecast we expect average consumption to come in at 97.78MMbpd in 2021 – 5.56MMbpd more than in 2020. This is hinged on expectations for higher auto sales and passenger vehicle usage in India, Other Asia, and the US, especially considering hopes surrounding the COVID-19 vaccine roll-out in the country. For 2021 average supply, it is expected to print at 97.11MMbpd – 2.85MMbpd more than in 2020. This is to be driven by a boost in crude oil production from OPEC countries, as supply cuts are eased in 2021. In addition, improved pipeline capacity in Canada and Brazil, rise in Libyan crude production, and the potential for an ease in Iranian sanctions feed into our expectation for increased supply in 2021. Considering these, we put our 2021 base forecast for average oil price at $52.47pb (EIA: $52.70pb), whilst our bull and bear cases are $60.84pb and $42.34pb, respectively.
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