After a year of unprecedented oil demand shock during the COVID-19 pandemic, Wood Mackenzie expects 2021 total liquids demand to average 96.7 million barrels per day (b/d), 6.3 million b/d higher than 2020.
The report outlined that all eyes would be on OPEC+’s plan to ease production restraint by 2 million b/d to 5.8 million b/d as of January.
However, Wood Mackenzie advised that it had been waylaid by an implicated agreement made in December to bring output back in increments to be decided at the start of each month, along with the February-March additional voluntary cuts by Saudi Arabia.
Wood Mackenzie vice president Ann-Louise Hittle said it assumed output would gradually rise from April as the group obtained the planned 5.8 million b/d restraint level by the third quarter of 2021.
“But OPEC+ decisions are a huge uncertainty for this year. Can OPEC+ negotiate deals each month and remain committed to production restraint? Some production restraint is needed in 2021 for market balance, but compliance could wane with demand recovery,” Hittle said.
Hittle further predicted that output will decline by around 500,000 b/d in 2021 on a year-on-year basis, a more moderate rate than in 2020.
Rig activity is expected to continue to rise but much of the recovery rate is dependent on oil prices and the industry’s willingness to spend on volume growth again.
In addition, despite demand projected to increase strongly, 2021 refinery utilisation is set to remain low, with over one million b/d of refining capacity being completed in the Middle East and Asia this year.
Vice president Alan Gelder said one of the hottest topics in the refining sector this year is liquid renewables, with the energy transition and aspirations of many integrated oil companies planning to achieve carbon neutrality offering hope to refineries under threat of closure.
“The traditional closure route for a refinery is conversion into a terminal, so retaining a role in the distribution infrastructure for liquid fuels. Now, there is the opportunity to repurpose these facilities to also produce liquid renewables,” Gelder said.