OIES Oil Monthly – Issue 7
The new issue of OIES Oil Monthly, including our latest short-term oil market outlook, is now available.
This month’s featured In Focus piece focuses on India’s oil demand and on the headwinds that compromise a surprise recovery similar to 2020. Following the devastating impact of the second COVID wave on India’s product demand in April 2021, demand rebounded strongly between July and August with gasoline and jet fuel leading the recovery. In contrast, gasoil continues to show signs of weakness reflecting a very uneven recovery compounded by pre-COVID-19 economic challenges. Another headwind facing India’s oil demand is the high domestic retail price, in part due to rising crude prices, but, more importantly, due to higher excise duties with taxation of petroleum products constituting a key source for federal government and states’ revenues.
Our reference forecast for Brent is little changed at $68.9/b in 2021 and $70.7/b in 2022. Absent any downside surprises pertaining mainly to demand-side risks, oil prices are still seen holding above $70/b for the remainder of 2021. But as we enter 2022, oil prices are expected to retreat to the mid-$60s before gaining momentum again towards the end of 2022 as the rebound of global demand accelerates, OPEC+ completes the return of its cuts shrinking the spare capacity cushion, and non-OPEC supply growth outside North America remains muted. Optimism for a strong demand recovery in H2 2021 wanes over pandemic concerns, with y/y growth in 2021 downgraded to 5.5 mb/d from 5.7 mb/d, but some catch-up is seen in 2022 with global demand projected to grow by 3.3 mb/d from 3.2 mb/d previously. Global oil supply is expected to grow by 1.6 mb/d in 2021 and 6.4 mb/d in 2022. The supply outlook is mainly driven by OPEC+ decision to gradually increase its output. Overall, the market can absorb the expected increase in OPEC+ output towards the end of 2021, with deficits persisting throughout and averaging to -0.8 mb/d for the year as a whole, but the market balance flips into a 2.3 mb/d surplus in 2022. Balances however could still find support from either the supply or demand side of the market in 2022, or both, narrowing the surpluses and leading to a more balanced market; reaffirming the importance of OPEC+ supply management.