OIES Oil Monthly – Issue 8

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 West African crudes and their important role as a bellwether for the strength of the recovery. Given the uncertainties still surrounding the oil market and the prevalence of the view that the market can only go in one direction for the foreseeable future, the shift in West African crude trade flows, and their pricing in the next few months, will provide us with important clues regarding the extent of the strength of the demand recovery and its evenness.

Our reference forecast for Brent is upgraded to $69.4/b in 2021 and $71.7/b in 2022. The upper bound has moved to above $80/b in our forecast horizon for the first time in 2021. Although futures Brent has broken the $80/b mark recently, our monthly reference forecast sees Brent retreating back into the $70s for the remainder of 2021 and falling into the low-$70s in Q1 2022 as market balances shift from deficit to surplus. In H2 2022, our reference forecast reverts to the high $70s and the upper bound moves back into the $80/b and $85/b range, as surpluses begin to ease keeping an upward pressure on our outlook. Risks around the outlook are now balanced, as new supply/demand risks on the upside pertaining to supply constraints and potential near-term oil-switching in power generation, offset pandemic-driven demand risks and bottleneck pressures. Global oil demand growth is lowered to 5.3 mb/d in 2021 on softer growth in Asia and is slightly upgraded in 2022 to 3.35 mb/d. Global supply continues to battle widespread outages and low investment, with global oil supply growth lowered to 1.4 mb/d from 1.6 mb/d in 2021 and to 6.1 mb/d from 6.4 mb/d in 2022. Market balances are seen in deficit for the entirety of 2021 estimated at -1 mb/d, before shifting into a 1.8 mb/d surplus in 2022. Risks around the outlook however are skewed on the upside and are mainly confined on the supply side, expected to further narrow the projected surpluses in 2022.