The Organization of the Petroleum Exporting Countries and allies (OPEC+) agreed on June 1 to maintain the current pace of gradual easing of supply curbs through July, signaling confidence in improving oil demand and a drop in the global supply glut. On the day of meeting, oil prices increased with Brent topping $70/bbl.
In April, OPEC+ decided to return 2.1 million b/d of supply to the market during May through July as it expected a return of demand as COVID-19 vaccinations roll out. Since then, oil prices have continued to tick upward and have risen by more than 30% so far this year.
After the June meeting, Saudi Energy Minister Prince Abdulaziz bin Salman said he saw a good recovery in demand in the US and China. OPEC+ forecasts a 6-million b/d jump in oil demand in 2021 as the world recovers from the COVID-19 pandemic.
Regarding the expected return of Iranian oil, OPEC Secretary General Mohammad Barkindo said he did not expect higher Iranian oil supply to cause problems. "We anticipate that the expected return of Iranian production and exports to the global market will occur in an orderly and transparent fashion," he said in a statement. Iran could boost production and exports by 1-1.5 million b/d if sanctions are fully removed.
OPEC+ reduced production by a record 9.7 million b/d last year as demand collapsed due to the pandemic. As of July, the restrictions still in place will remain at 5.8 million b/d.
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Overall, there is a strong consensus that oil demand is on the mend, but there are various interpretations of how fast and sustained the upward curvature will be, said Rystad Energy analysts.
“Looking back at demand, the market is shrugging off the downside risk spreading across Asia. While the more than 1 million b/d demand dent in India is likely already priced in, the wave of new restrictions in Japan, Indonesia, Thailand, and Vietnam may not yet be fully appreciated in terms of oil consumption losses.
“Gasoline demand in the US is increasing as we enter the summer season and also Chinese factory activity had a very strong May, both cementing trader enthusiasm and helping prices grow.”
Rystad Energy maintains guarded skepticism compared to other market forecasters, as the rapid distribution of vaccines and subsequent boosters will still not bring herd immunity to many countries, especially in the developing world, until end-2021. There may be a need for more lockdowns and more oil demand destruction along the way.
“Unless new lockdowns are imposed or extended, we see oil demand recovering during the second part of the year, mainly boosted by the structural growth of road transport and petrochemicals.”
Rystad Energy expects total liquids products demand to average 94.5 million b/d in 2021, lower than the OPEC research division estimate of 96.4 million b/d.
