The oil markets in 2021

moin oil marketsWill the New Year offer much-needed relief after the unprecedented and historic 2020 turbulence in energy markets? Economist Moin Siddiqi shares his thoughts on key trends to look out for in 2021

The coronavirus pandemic and the global economy will influence the pace of oil recovery, along with a number of other factors. 

1. Excepting China, output in both advanced nations and emerging market and developing economies (EMDEs) in 2021 is expected to fall below 2019 levels. Countries reliant more on contact-intensive services and oil exporters face weaker recoveries compared to manufacturing-led economies. After the rebound in 2021-22, global growth is projected to average around 3.5% over the medium term. Growing restrictions on trade and investment and rising geopolitical uncertainty could derail the recovery. On the upside, faster and more widespread availability of tests, treatments, vaccines, and further rounds of monetary/fiscal stimuli can significantly improve outcomes.

2. Forecasts by the International Energy Agency (IEA) and OPEC do not expect 2021 oil demand returning to pre-downturn levels. It could rebound by 5-6mn bpd on an annual basis compared to 2020, but consumption is still falling 3-5% below that of 2019. IHS Markit expects near-full recovery by early 2022. Generally, the 2021 outlook assumes an uptick in global economic activities supporting demand for industrial fuels, especially in OECD Americas and China. This includes higher infrastructure spending, as well as the revival of construction and manufacturing sectors. Travel and tourism are not likely to achieve pre-Covid levels of activity for the next few years.

3. OPEC+ group aims to control the market by balancing the supply side of the equation. Monthly OPEC+ ministerial meetings will decide whether output should increase, decrease, or hold steady. Demand for OPEC crude in 2021 stands at 27.2mn bpd, 5mn bpd up on 2020. The OPEC+ discipline should reduce stockpiles in near-term, but inventory overhang is substantial. On the supply side, the risks are tilted to the downside, with surging Libyan production and Norway ending its oil cuts from end-2020. Possible lifting of U.S. sanctions on Iran and Venezuela in 2021 could boost the ‘supply glut’ even further. 

4. Crude oil futures are strongly correlated with observable OECD ¬inventories, which totalled 3bn barrels at end-2020 (above five-year average), according to the U.S. Energy Information Administration (EIA). Even if the global economy recovers robustly, there is still a crude storage glut (both onshore/offshore) that needs to be drawn down before the market returns to more sustainable balance. A return to normal stock levels would see prices rising towards H2 2021. 

5. Transportation fuels have suffered demand destruction thanks to pandemic-related lockdowns and international travel restrictions. Recent data shows that road traffic remained below pre-crisis levels by 5%, 20% and 40% in Asia, Europe, and the USA respectively. A plunge in demand for jet fuel and kerosene will account for 80% of 2021’s 3.1mn bpd gap in overall fuel consumption versus pre-epidemic levels, according to the IEA. Global jet fuel demand comprises 8% of total oil consumption.  

6. Markets are buoyed by positive developments on Covid-19 vaccines that would boost economies and hence, fuel demand. Vaccines are unlikely to significantly boost demand until well into H2 2021. The coronavirus cases surge in the USA and Europe have led to renewed lockdowns, while in Asia, virus infections are relatively under control and energy demand is healthy. Thus, until fuel usage in major OECD economies recovers to a more sustainable level, oil price gains will depend on Asia’s demand (led mostly by China). 

The general market consensus is that the oil price will see an upside with excess inventories drawing down as the global economy and fuel demand recover gradually over the coming months. Fitch Ratings believes that “the global oil and gas market will be on the way to recovery in 2021, although the improvements will be moderate and lack certainty.”


(Brent crude, the global benchmark for oil prices)


Goldman Sachs 65.0 
Citigroup 55.0
US. Energy Information Administration 48.5
World Bank 44.0
International Monetary Fund  40-50 range
Fitch Ratings  45.0
Moody’s Investors Service   40-45 range
Barclays Commodities Research 53.0
SP Global Platts mid 40s-50
Rystad Energy  44.0

A poll of 39 oil market analysts conducted in mid-December 2020 projected a combined average Brent price of US$50.67 in 2021. 

Moin Siddiqi’s full report “The oil market: steep climb ahead” will be published in Oil Review Middle East Issue 1 2021.

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