OPEC has revised its 2021 oil demand upward to stand 190,000 bpd higher than last month's estimates, on the back of an economic rebound that surpasses last month's outlook.
Global 2021 oil demand is now expected to average 96.46 million bpd for the full year, according to OPEC's latest projects included in its April Monthly Oil Market Report. That figure is up from 96.27 million bpd in last month's report, and up from the newly estimated 2020 oil demand figure of 90.51 million bpd.
In last month's report, OPEC had estimated 2020 global oil demand at 90.39 million bpd.
Behind the Curtain
This upward revision comes after the group's de facto leader, Saudi Arabia, told the group at the last OPEC meeting that the oil demand figures they were using were too low and that actual global oil demand would be higher.
As the only true swing producer in the group, Saudi Arabia still has enormous sway within OPEC.
The group ultimately decided to gradually lift oil production starting in May 2021 based on these figures, which it did not disclose at the time.
Whatever spark, an optimistic oil demand projection by OPEC is bound to have a positive effect on prices.
For its April MOMR, OPEC cited a "stronger economic rebound than assumed last month." Supporting this economic rebound, OPEC said, were stimulus programs, easing of Covid-19 lockdown measures, and accelerated vaccine rollout, particularly in the OECD region.
On the vaccine front, which OPEC cites as cause for oil demand optimism, an estimated 20% of the U.S. population has been fully vaccinated. In Israel, a whopping 57% of the population has been fully vaccinated. But overall, less than 10% of the world has received a single dose. Some countries are not expected to reach the 20% threshold by the end of 2021.
The Sad Truth About H12021
While OPEC has adjusted up its oil demand projections for the whole year—and adjusted its production to match—it revised downward its oil demand projections for the first half of this year.
Its reasons for lowering its H12021 projections seem to mimic the reasons it raised its full-year oil demand projections: Covid-19 measures in OECD Europe, and sluggish—actual—Q1 2021 demand data in the non-OECD region.
And OPEC raised another caution flag in its report: "Risk will remain high during 2021, subject to COVID-19 developments, and the pace of reaching heard immunity targets." OPEC also pointed out additional risks that included new energy policies and the "effectiveness of the large scale monetary and fiscal stimulus measures"—all of which will impact oil demand in the short-term.
While the data for the first part of 2021 showed worse oil demand than previously expected, OPEC's actual Q1 production for 2021 increased. OPEC's first-quarter production this year was 25.138 million bpd, compared to the previous quarter's 24.941 based on OPEC's secondary source figures. Related: Oxford Institute: Don't Expect A Supercycle In Oil
The countries showing increases in production of more than 100,000 bpd quarter on quarter are all the countries that are currently exempt from OPEC's production cut agreement. Iran, Libya, and Venezuela produced a combined average of 558,000 barrels per day more in Q1 2021 than they did in the last quarter of 2020.
The UAE also increased production by 96,000 bpd quarter over quarter. Iraq represented the fifth-largest increase at 64,000 bpd, while it was supposed to be producing under its quota to make up for previous overages as spelled out in the production cut agreement.
Thankfully for OPEC, swing producer Saudi Arabia produced an average of 522,000 barrels per day less in Q1 2021 compared to Q4 2020.
For the month of March, Iran, Angola, Iraq, and Libya saw the largest increase in crude production, while Saudi Arabia was, again, saw the largest decrease, bringing its March production to 8.090 million bpd. Overall, OPEC’s March production was 201,000 bpd higher than February, at 25.042 million bpd.
This compares to an average 25.645 million bpd across all of 2020.
OPEC’s production is expected to increase in the coming months after the last OPEC+ meeting agreed to ease up on the production cut quotas. In the first tranche of increases, an additional 500,000 bpd is expected—half from OPEC+ and half from Saudi Arabia’s voluntary cuts. Saudi Arabia, however, has signaled to the market that the group will be flexible with its production quotas to meet demand, wherever it may be.
By Julianne Geiger for Oilprice.com
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