Global demand for oil is forecasted to grow by 5.4 mb/d to reach 96.4 mb/d in the second half of 2021, thereby recouping about 60% of the volume of demand lost to the pandemic in 2020, according to the International Energy Agency (IEA).

Based on the report, a more favourable economic outlook will bolster demand in the second half of the year. This positive outlook is emboldened by a pledge from the Organization of Petroleum Exporting Countries (OPEC+) to speed up the drawdown of oil inventories.

Although hopeful about a rebound in the early part of 2021, the spread of new strains of the COVID-19 virus in much of Europe and the delay in vaccine rollout short-circuited the much anticipated robust recovery entering into 2021. Thus, the spill over effects from an already low demand of oil in the fourth quarter of 2020 continued into 2021, and rather informed the need to lower expectations by 1mb/d in Q1, 2021.

Other developments in the oil market, such as the prospect of tighter markets raised benchmark crude oil prices from $57/bbl to $60/bbl. In January, Global oil supply increased from 590kb/d to 93.6mb/d, as OPEC+ cuts eased and non-OPEC + pumped more. In February 2021, global oil supply is projected to fall as Saudi Arabia implements a huge voluntary cut. Accordingly, the outlook is improving for countries outside the OPEC+ alliance, with an 830kb/d gain expected in 2021 compared with a 2020 loss of 1.3 mb/d.

According to the International Energy Agency, ICE Brent crude futures rose above $60/bbl in early February 2021. Crude oil prices were driven up by paper markets/ futures markets during the period, reflecting a favourable economic outlook for the second half of 2021 and OPEC+ supply cuts. Also, physical markets, where buyers physically meet with sellers for transactions lagged crude oil futures as there were delays in clearing cargoes of crude oil.

With regards to refinery activities, quantities of refined oil declined modestly to 110 kb/d in December 2020. However, expectations are that growth in refinery quantities will fall by 1.8 mb/d y-o-y in first quarter of 2021, but annual growth is expected to be pick up from the second quarter of 2021 onwards. Furthermore, most of the gains will come from the Atlantic Basin, where refinery activity is recovering from a lower base. A cursory look at performance in 2020 reveal that the Atlantic Basin refinery intake fell to 38.7 mb/d, the lowest ever recorded by IEA.

Considering the feeble outlook of the oil market and consequently, oil demand throughout the whole of last year and the beginning of this year, OPEC+ has reassured market players of its commitment to help eliminate the massive overhang in oil stock that built up last year. Oil inventories have been declining since Q3 of 2020.

As a consequence, Saudi Arabia has promised to cut oil supply by an extra 1 mb/d this month and March too. This comes, following the current production policy of the group which calls for majority of its members to hold supply steady through March. OPEC+ ministers are due to meet in early March to discuss policy for April 2021.