Our outlook for the oil market in 2021
We see six main factors affecting the oil price in 2021—two demand-related, two supply-related, and two related to US politics and diplomacy. On the demand side, the key variable will be the pandemic.
On the demand side, our central scenario is based on vaccine availability in early 2021 with largescale roll-outs from Q2 2021 on. The resultant recovery in mobility and leisure activities should increase the demand for oil. China has been important in maintaining oil demand during the pandemic crisis. While Chinese refineries have taken advantage of low prices to stock oil massively, China’s head-start in the economic recovery should put a floor under oil prices.
In terms of supply, OPEC+ has become the world’s swing producer. As there is plenty of capacity worldwide, it will be forced to continue to enforce discipline to maintain the current fragile demand-supply equilibrium. Furthermore, a truce in fighting between warring factions has enabled Libyan oil production to recover rapidly. If the truce is maintained, Libyan supply will add more than 1mbd to global oil market, increasing pressure on OPEC+ to rein in its own production.
As for US politics and diplomacy, the November elections in the US hold out the possibility that Washington adopts a different attitude towards Iran. However, negotiations are likely to be long and bumpy before US sanctions are lifted. We do not expect Iranian oil to flood the market in 2021. Some symbolic ‘green economy’ measures are likely to be announced by Joe Biden, but these should not affect US oil production much. At the same time, US shale oil is unlikely to reach pre-crisis levels in 2021 due to the deep transformations the industry is undergoing.
All in all, we see oil demand and supply moving back into balance in 2021. While abundant production capacity means that upside price potential could be limited, our central scenario is for the Brent oil price to increase to about USD55 per barrel at end-2021 compared with about USD50 today.
Obviously, there are many unknowns—among others involving OPEC+’s continued production discipline, the Iranian nuclear deal, the new US administration’s policy towards climate change and the truce in Libya.