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Oil Market Report Summary (11 June 2021)

Core Content Overview

This report provides a comprehensive analysis of the global oil market trends, focusing on demand, supply, refining, and stock dynamics as the world recovers from the pandemic. It highlights the uneven recovery across regions and sectors, the role of OPEC+ in maintaining market balance, and the impact of vaccine distribution and technological changes on oil demand and supply.

Main Points

Global Oil Demand

• Recovery Timeline: Global oil demand is projected to return to pre-pandemic levels by the end of 2022, with a 5.4 mb/d increase in 2021 and a further 3.1 mb/d in 2022.
• Regional Contributions:
  • OECD accounts for 1.3 mb/d of the 2022 growth.
  • Non-OECD countries contribute the remaining 1.8 mb/d.
• Sector-Specific Trends:
  • Jet and kerosene demand will see the largest increase (+1.5 mb/d y-o-y).
  • Gasoline demand is expected to rise by +660 kb/d y-o-y.
  • Gasoil/diesel demand is forecast to increase by +520 kb/d y-o-y.
• Challenges:
  • Aviation sector recovery is slow due to lingering travel restrictions.
  • Teleworking and electric vehicle (EV) adoption will constrain gasoline and diesel demand.
  • Non-OECD countries face slower recovery due to uneven vaccine distribution.

Global Oil Supply

• Non-OPEC+ Growth: Output from non-OPEC+ producers is set to rise by 710 kb/d in 2021 and 1.6 mb/d in 2022, driven primarily by the US, Canada, Brazil, and Norway.
• OPEC+ Response: OPEC+ is expected to increase crude oil production by 1.4 mb/d above its July 2021-March 2022 target to meet demand growth.
• Spare Capacity: OPEC+ has 6.9 mb/d of effective spare capacity, with the potential to add 1.4 mb/d if Iran's sanctions are lifted.
• Market Balance: Despite supply increases, OPEC+ output will still be below 2019 levels even if they meet demand.

Refining Sector

• Capacity Additions: 3.8 mb/d of new refining capacity will come online in 2021-22, partially offset by 2.3 mb/d of closures or conversions to bio-refineries.
• Utilisation Rates: Global average refinery utilisation is expected to reach 78%, limiting margin recovery.
• Demand Recovery: Refinery throughput is forecast to increase by 2.4 mb/d in 2022, lagging behind demand growth for refined products.

Oil Stocks

• OECD Stocks: OECD industry stocks remained steady in April at 2926 mb, but fell 1.6 mb below the pre-Covid 2015-19 average.
• Short-Term Storage: Crude oil in short-term floating storage declined by 6.8 mb to 99.4 mb in May, the lowest since February 2020.
• Regional Trends:
  • OECD Americas: Oil demand increased by 2 mb/d m-o-m in March, with US gasoline demand rising by 325 kb/d m-o-m.
  • OECD Europe: Oil demand rose by 440 kb/d m-o-m in March, with diesel and gasoline leading the growth. Mobility improved in France, Germany, and the UK, but work-related movements remain below pre-pandemic levels.
  • OECD Asia Oceania: Oil demand in the region is expected to grow steadily as economies reopen and mobility increases.

Crude Oil Prices

• Price Trends: Crude prices rose due to strong fundamentals and financial market sentiment. North Sea Dated reached 68.54/bbl in May and 69.84/bbl in early June.
• Backwardation: Steepened backwardation in both benchmark crude futures reflects expectations of tighter markets.
• Freight Costs: Tanker freight costs remained weak during May, indicating potential cost pressures on oil transportation.

Key Assumptions and Uncertainties

• Vaccine Rollout: The uneven distribution of vaccines could delay non-OECD demand recovery.
• Herd Immunity: Countries like India are unlikely to reach herd immunity until late 2022, which may affect demand.
• Behavioral Changes: With re-opening, there is expected to be strong demand for road transportation, reduced air travel, and increased use of stimulus funds.
• EV Impact: EV sales may have a limited impact on gasoline and diesel demand in the short term, but efficiency gains in ICE vehicles could offset some of the decline.

Key Information

• Global Demand Recovery: Expected to reach 100.6 mb/d by end-2022.
• OPEC+ Role: OPEC+ is critical in balancing supply and demand, with 6.9 mb/d of spare capacity.
• Refinery Margins: Expected to remain depressed due to high utilisation and limited capacity additions.
• Non-OECD Challenges: Slower recovery in non-OECD regions due to vaccine distribution issues and continued mobility restrictions.
• EV Adoption: Europe leads in EV sales, with a 10% share of total car sales, while the US lags behind.
• Aviation Recovery: Expected to be slower than other sectors, with international travel still below 2019 levels.

Table of Key Data

Demand Growth (mb/d)

• 2021: 5.4 mb/d
• 2022: 3.1 mb/d

Supply Growth (mb/d)

• 2021: 710 kb/d (non-OPEC+)
• 2022: 1.6 mb/d (non-OPEC+)

Refinery Capacity Additions (mb/d)

• 2021-2022: 3.8 mb/d

Refinery Throughput Growth (2022): 2.4 mb/d

Key Assumptions

• Teleworking: Expected to reduce gasoline demand by 300-350 kb/d.
• EV Sales: May save 50-70 kb/d per year in fuel demand.
• Vaccine Availability: Enough doses to vaccinate 60% of the world twice by end-2021.
• Herd Immunity: Likely to be achieved in OECD countries by mid-2022, but delayed in non-OECD.

Conclusion

The oil market is on a path of recovery, with demand expected to return to pre-pandemic levels by the end of 2022. However, the pace of recovery is uneven, particularly in non-OECD countries, due to vaccine distribution and continued mobility restrictions. OPEC+ remains a key player in maintaining supply balance, while the refining sector faces challenges in margin recovery due to high utilisation and limited capacity additions. The long-term outlook for oil demand is uncertain, as the shift towards EVs and increased efficiency in traditional vehicles could impact future consumption.