Crude oil glut likely to overshadow any OPEC+, US policy shifts

 

S&P Global Platts Analytics slashed its 2021 oil consumption outlook by 700,000 barrels per day (b/d) recently and now predicts oil demand growth of 5.8 million b/d in 2021.

The oil market remains awash with crude. Potential changes in OPEC+ and US policy won't solve the industry's demand problem, while the world's key oil producers will be hard pushed to cut supply further. Only a vaccine can cure Covid-19-induced consumption ills.

Record coronavirus cases, a new wave of lockdowns across Europe and a stagnant road use trend in the US have had oil forecasters scaling back their recovery scenarios. The major European economies have seen mobility drop to its lowest since mid-June, signaling a renewed collapse in gasoline and diesel demand.

S&P Global Platts Analytics slashed its 2021 oil consumption outlook by 700,000 barrels per day (b/d) recently and now predicts oil demand growth of 5.8 million b/d in 2021, putting any revival well below pre-Covid-19 levels.

China has almost single-handedly carried oil in recent months – and is the only country expected to see year-on-year growth, albeit just 0.3% according to Platts Analytics – but there are limits to its support. Indian mobility has tentatively started to pick up but nevertheless remains extremely weak given that the country has been the second-worst hit after the US in terms of Covid-19 infections.

Vaccine hope

Progress over a vaccine has given the oil market hope but there are still as many questions: when will it be approved and when will it be available to be rolled out on a mass scale? Time ticks away and, with it, the demand recovery.

OPEC and its non-OPEC allies led by Russia are having to rethink their plans. The so-called OPEC+ producer pact meets at the end of the month and there is a growing consensus that the alliance will no longer be able to release almost 2 million b/d of crude back on to the market early next year as it had intended. The most likely scenario is a rollover of the current 7.8 million b/d production cut deal for three months but there is even chatter that OPEC+ may consider something more drastic to bolster prices.