Oil

OPEC says its outlook for the oil market is still clouded by pandemic fears

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Key Points
  • The closely watched oil market report comes as coronavirus cases continue to surge worldwide, with new lockdowns imposed in Europe and parts of China.
  • OPEC said it expected global oil demand in 2021 to increase by 5.9 million barrels per day year over year to average 95.9 million bpd.
  • “Anyone who keeps his or her finger on the pulse of the oil market knows that prices are currently driven by expectations and not by immediate realities,” said Tamas Varga, senior analyst at PVM Oil Associates.
An oil pumping jack, also known as a "nodding donkey", in an oilfield near Dyurtyuli, in the Republic of Bashkortostan, Russia, on Thursday, Nov. 19, 2020.
Andrey Rudakov | Bloomberg | Getty Images

LONDON — Oil producer group OPEC on Thursday kept its 2021 forecast for global crude demand growth unchanged, but warned uncertainties over the impact of the coronavirus pandemic remain high.

The closely watched oil market report comes as Covid cases continue to surge worldwide, with new lockdowns imposed in Europe and parts of China.

In recent weeks, optimism about the mass rollout of coronavirus vaccines appears to have been tempered by the resurgent rate of virus spread.

It has resulted in oil producers trying to orchestrate a delicate balancing act between supply and demand as factors including the pace of the pandemic response continue to cloud the outlook.

"Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior," OPEC said Thursday.

"These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism."

The 13-member group said it expected global oil demand in 2021 to increase by 5.9 million barrels per day year on year to average 95.9 million barrels per day. The forecast was unchanged from last month's assessment.

The group said world oil demand growth in 2020 declined by 9.8 million barrels per day year on year to average 90 million barrels per day. The group noted the fall was marginally less than expected in December.

OPEC said its 2021 forecasts "assume a healthy recovery in economic activities including industrial production, an improving labour market and higher vehicle sales than in 2020."

"Accordingly, oil demand is anticipated to rise steadily this year supported primarily by transportation and industrial fuels," the group said.

Oil prices 'driven by expectations'

OPEC and its non-OPEC allies, an alliance sometimes referred to as OPEC+, cut oil production by a record amount in 2020 in an effort to support prices, as strict public health measures worldwide coincided with a fuel demand shock.

OPEC+ initially agreed to cut output by 9.7 million bpd, before easing cuts to 7.7 million and eventually scaling back further to 7.2 million from January. OPEC kingpin Saudi Arabia has since said it plans to cut output by an extra 1 million barrels per day in February and March to stop inventories from building up.

International benchmark Brent crude futures traded at $55.77 a barrel on Thursday, down 0.5% for the session, while U.S. West Texas Intermediate futures stood at $52.76, around 0.3% lower. Oil prices are currently on pace for their third consecutive week of gains.

"Anyone who keeps his or her finger on the pulse of the oil market knows that prices are currently driven by expectations and not by immediate realities," Tamas Varga, senior analyst at PVM Oil Associates, said in a research note.

"Those who disagree are recommended to have a quick look at the forecasts of H1 2021 oil demand over the past few months and compare these estimates with price developments," he added.

Ahead of Thursday's publication of its oil market report, OPEC had steadily lowered its demand growth forecasts for 2021.

Other major forecasters, including the International Energy Agency and the U.S. Energy Information Administration, have also downgraded their oil demand growth estimates for 2021 in recent weeks.