Save for later Print Download Share LinkedIn Twitter • June demand forecasts for 2021 diverged as agencies weigh varying rates of economic recovery in OECD and non-OECD countries. • With Brent comfortably past $70 for now, price prognostication is in the spotlight, and three agencies surveyed see a wide price range, or $60-$73, for 2022. • The oil price recovery has led to an upward reassessment of supplies both this year and next, particularly among non-Opec producers. The effects of the Covid-19 pandemic will linger in some non-OECD countries longer than in most wealthier OECD member states, which means the pace of recovery, and hence demand for oil, will vary regionally in the second half of 2021. Consensus sees Brent in a $65-$68 band this year, although forecasts for 2022 begin to diverge, ranging from $73 by Energy Intelligence to $60 by the US Energy Information Administration (EIA). Oil at $70 is too lucrative to pass up for producers and will trigger a new wave of wellhead activity in non-Opec countries, particularly the US, consensus shows. But ongoing capital discipline will keep upstream investments in check. OECD Spurs Demand A combination of high vaccination rates and economic stimulus measures will allow the 34 OECD economies to return to normalcy months ahead of non-OECD countries. This reality is forcing agencies to fine tune their demand outlooks for the second half of 2021. Three of four agencies surveyed revised demand in OECD upward in their June reports, with Opec bucking the trend and reducing overall OECD demand this year down by 60,000 barrels per day, to 44.7 million b/d. This was done to reflect “lower-than-expected” data from the Americas and Europe for the January-June period, Opec explained. The International Energy Agency (IEA) increased OECD demand growth by 100,000 b/d to 44.8 million b/d, while the EIA boosted it by 60,000 b/d to 44.3 million b/d. Energy Intelligence now sees OECD demand amounting to 45.2 million b/d, which is up by 200,000 b/d from last month’s forecast thanks to stronger-than-anticipated rebounds in the US and the EU. We also adjusted downward demand in non-OECD countries, which we now see at 52.64 million b/d, a decline of 100,000 b/d from last month’s forecast. For the year, demand growth will comprise 5.5 million b/d, our latest forecast shows. The IEA and EIA both see demand growing by 5.4 million b/d, while Opec has penciled in 6 million b/d. Widening Price Range With Brent having surpassed $70 and again sniffing at $75, agencies are honing price forecasts. To be sure, Energy Intelligence for several months now has held Brent at $68 this year and $73 in 2022. New oil supplies will lag resurgent demand, according to our base scenario, which includes a ramp-up in output by Iran. The EIA, by contrast, this month reassessed its 2021 forecast for Brent up by nearly $3 per barrel to $65.20. Likewise, the Oxford Institute for Energy Studies (OIES), upped its outlook for Brent this year by $2.80/bbl to $65.20 in its latest report. For 2022, the OIES, which began publishing a monthly oil market report in January, now sees Brent averaging $68.70, up $1.90/bbl compared to last month. By contrast, the EIA sees the global benchmark falling $4.70/bbl next year and averaging $60.50 since more output from both Opec-plus and US shale “will outpace decelerating growth in global oil consumption.” Global oil markets will shift from inventory builds to inventory draws, the EIA says. Opec and the IEA do not forecast oil prices. Price Entices Supply Greater non-Opec supplies will chase the higher prices this year, consensus shows. The IEA upped its forecast for non-Opec production by 100,000 b/d to 63.9 million b/d, with US output accounting for most of this adjustment. Opec boosted non-Opec production this year by 130,000 b/d to 63.73 million b/d, with US liquids output now estimated at 17.66 million b/d, up 110,000 b/d from last month’s report thanks to a “faster-than-expected recovery ... from the February winter disruption.” The EIA, meanwhile, bumped up non-Opec production this year by 180,000 b/d to 64.68 million b/d, with 100,000 b/d in more liquids from the US than seen last month. The agency expects US producers to drill and complete wells in the coming months to offset declines at existing ones, while new projects in the Gulf of Mexico will also boost output. Energy Intelligence, for its part, only slightly revised its forecast for non-Opec output this year. We see production by this group amounting to 64.16 million b/d, up 840,000 b/d from 2020, which is essentially unchanged from last month’s assessment. US producers will respond to higher prices, but this won’t be felt until 2022. Gary Peach, Albany
