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OPEC and EIA Downgrade Recovery Estimates

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By: Paul Hickin – S&P Global Platts – Major energy institutions are adopting a cautionary tone over oil demand in 2021, with the International Energy Agency and OPEC on Feb. 11 joining the US Energy Information Administration in trimming their recovery estimates.

The IEA in its monthly oil market report still pointed to a tightening oil market this year, despite lowering its estimate of the revival in global oil demand this year and seeing improving non-OPEC supply growth. The “fragile rebalancing” will be aided by still reasonable demand growth along with cautious OPEC+ market management and flatlining US output.

The Paris-based agency predicts global oil demand will grow by 5.4 million b/d in 2021 to reach 96.4 million b/d, noting this would be around 60% of the volume lost to the pandemic in 2020. The IEA lowered by 100,000 b/d its oil demand outlook for the current quarter, because of the increasing emergence of new COVID-19 variants.

This is the fourth straight month the IEA has lowered its demand outlook, as it shifted its optimism to the second half of the year given the challenges the world is facing in reining in COVID-19.

“A more positive global economic outlook and the start of large-scale vaccination campaigns in much of the developed world will reinforce stronger oil demand growth in the second half of the year,” the agency said, citing the IMF’s improved outlook for the global economy.


OPEC’s monthly report also on Feb. 11 trimmed its forecast, noting oil demand will rise by 5.8 million b/d this year to 96.1 million b/d.

Both the IEA and OPEC pointed to the second half of the year as providing a silver lining to demand and this could speed up the tightening of the oil market.

“While the global economy is showing signs of a healthy recovery in 2021, oil demand is currently lagging, but is forecast to pick up in the second half of 2021,” OPEC said in the report.

The EIA also pared back its outlook earlier this month, forecasting global consumption growth of 5.4 million b/d in line with the IEA, and overall consumption of 97.7 million b/d.

S&P Global Platts Analytics takes a more sanguine view, predicting global oil demand will grow by 6.1 million b/d after a contraction of 8.8 million b/d in 2020 as it sees an even quicker recovery.

“Balances remain relatively stable with modest stock draws for the next few months, with OPEC+ and Saudi Arabia supply restraint in response to COVID-19-related demand uncertainty,” Platts Analytics said in a research note. “As demand recovers later in the year, balances look tighter.”

Supply optimism

The IEA noted that outside of OPEC, producers are responding to higher oil prices, “albeit cautiously and from a low level,” citing the US shale patch and the Permian Basin, with US drilling and completion rates having increased steadily in recent months.

“At current prices there is clearly potential for some producers to respect those engagements and modestly increase their capital expenditures,” the agency said, even if “operators will stick to financial discipline and reward shareholders in 2021”.

Platts Analytics believes US supply will start to turn higher by mid-2021. “Some small to large-cap E&Ps are increasing drilling with higher oil prices while majors appear more conservative,” Platts Analytics said in a research note. “Still, we continue to believe the US shale industry will observe capital discipline in 2021.”

The IEA sees US crude supply holding steady at around 11.2 million b/d after falling 940,000 b/d last year, while Canada is now pumping at record rates and Brazil, Norway and Guyana are continuing along their growth trajectories.

Total non-OPEC+ supply will rise by 830,000 b/d in 2021 compared with a decline of 1.3 million b/d in 2020, the IEA said.

OPEC was even more downbeat on non-OPEC’s recovery prospects, putting supply growth at just 670,000 b/d.

“Supply from the US is challenged by short-term uncertainties around COVID-19 [and] continued capital expenditure discipline, leading to lower upstream capital spending by US oil companies,” OPEC said.

Tighter market

With OPEC+ affirming its readiness to help eliminate the massive oil stock overhang that built up last year, inventories have been steadily declining since the second half of last year. Saudi Arabia has promised to cut an extra 1 million b/d this month and next to help the cause.

While the IEA notes at OECD stocks at the end of December were still some 140 million barrels above their five-year average, OECD industry stocks still fell for a fifth consecutive month. OECD industry stocks dropped to 3.06 billion barrels. OPEC’s report shared similar figures.

Indeed, the IEA anticipates a “rapid stock draw” in the second half of the year, which it says “sets the stage” for OPEC+ to start unwinding from its production cut deal “even if producers outside the group ramp up faster than currently projected.”

The agency said global oil output could rise by more than 1.6 million b/d in 2021 provided those outside OPEC+ pump more, OPEC+ continues to ease its record cuts of 2020 and Libya continues its recovery.

Platts Analytics, meanwhile, highlights upside supply risks from Iran and Venezuela due to the potential for sanctions waivers and interest from Asian buyers. It assumes the return of 1 million b/d of Iranian oil by the end of 2021.

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