According to the IEA Oil Market Report (OMR) world oil demand is set to grow by 5.4 mb/d in 2021 to reach 96.4 mb/d, recovering around 60% of the volume lost to the pandemic in 2020. While oil demand is expected to fall by 1 mb/d in 1Q21 from already low 4Q20 levels, a more favourable economic outlook underpins stronger demand in the second half of the year. The incorporation of new data lowered the 2019 baseline by 330 kb/d.
Global oil supply rose 590 kb/d in January, to 93.6 mb/d, as OPEC+ cuts eased and non-OPEC+ pumped more. In February, global output is set to fall as Saudi Arabia implements a sizeable voluntary cut. The outlook is improving for countries outside the OPEC+ alliance, with an 830 kb/d gain expected in 2021 versus a 2020 loss of 1.3 mb/d.
Global implied stock draws accelerated from 1.56 mb/d in 3Q20 to 2.24 mb/d in 4Q20. In December, OECD industry stocks fell for the fifth consecutive month. A monthly decline of 44.6 mb (1.44 mb/d) left inventories at 3 063 mb, 138.3 mb above their five-year average. Products led the fall. OECD crude stocks were 62.8 mb below the May 2020 peak. January data show continued declines.
ICE Brent crude futures rose above $60/bbl in early February and the 12-month backwardation breached $4/bbl, returning prices to pre-pandemic levels. Paper markets drove prices higher, reflecting a favourable overall economic outlook for 2H21 and OPEC+ supply cuts. Physical markets have lagged futures as differentials reflect some delays in clearing cargoes.
The rebalancing of the oil market remains fragile in the early part of 2021 as measures to contain the spread of Covid-19, with its more contagious variants, weigh heavily on the near-term recovery in global oil demand. But fresh support has been provided by a more positive economic outlook for the second half of the year, along with a pledge from OPEC+ to hasten the drawdown of surplus oil inventories. The prospect of tighter markets ahead lifted benchmark crude oil prices to one-year highs in early February, with Brent trading at $60/bbl and WTI at $57/bbl.