It is with no doubt that, market expectations entering into 2020 was a boom for oil and oil products. However, the COVID-19 pandemic upended all expectations, especially for the first half of 2020. Indeed, global growth recovered considerably in Q3 of 2020, with the rebound mainly supported by the right mix of fiscal and monetary stimulus, as well as the easing of restrictions by the end of Q2 of 2020.

Additionally, stay-at-home savings mainly in the Organization for Economic Co-operation and Development (OECD) economies during periods of the lockdown built a solid footing for reviving consumption, global trade and overall investment. In recent times, rising infections and growing uncertainties have left the global economic recovery more fragile, with global GDP now revised to a decline of 4.2% in 2020.

Next year, global GDP is forecast to grow by 4.4%. This rebound will be mainly driven by emerging and developing economies, especially in Asia. This includes the contributions of increases in infrastructure spending, as well as improving construction and industrial activities. Uncertainties emanating from COVID-19 developments will still feature in the actual growth trajectories, policies of the incoming US administration and Brexit negotiations, as well as ongoing trade negotiations.

Meanwhile, recent news of the possibility of vaccination programs in most major economies may revise global GDP growth forecasts upwards, assuming that a vaccination will gradually become global by second half of 2021. Yet, earlier vaccinations would prompt a faster-than-anticipated move towards stabilization.

vaccine2 — Image Credit: The conversation

The COVID-19 pandemic and accompanying containment measures have had an unprecedented impact on world oil demand, with the latest data pointing to a historic contraction of 9.77 mb/d in 2020. OECD oil demand is estimated to drop by 5.48 mb/d in 2020 with OECD Americas accounting for the bulk of this fall, while non-OECD oil demand is anticipated to drop by 4.29 mb/d, with other Asia and India accounting for most of the decline. Although, China has recorded growth since the beginning of Q3 2020 and is projected to exhibit year-on-year growth in Q4 of 2020.

For 2021, global oil demand is estimated to rebound by 5.9 mb/d, a downward revision of 0.35 mb/d. This is reflective of the uncertainties surrounding the impact of COVID-19 on transportation fuels in OECD economies in first half of 2021. Albeit, OECD is expected to increase by 2.6 mb/d, led by OECD Americans contributing 1.6 mb/d. In the non-OECD, oil demand growth is projected to be around 3.3 mb/d, with growth focused in China and India. The solid economic recovery coupled with the low baseline of 2020 will support oil demand growth next year.

Transportation and industrial sectors are projected to lead oil demand growth in 2021. However, uncertainties remain high, mainly surrounding the development of the COVID-19 pandemic and rollout of vaccines, as well as the structural impact of COVID-19 on consumer behaviours, predominantly in transportation sector. Petrochemical feedstocks are also expected to rebound on the recent increase in capacities in China and US.

According to OPEC monthly report, all products are estimated to grow year-on-year following the steep impairment in 2020. On the flip side, fuel efficiency gains, the continuation of oil displacement programs and subsidy removals will limit oil demand growth. Total oil demand is estimated to reach 95.89 mb/d in 2021.