As the world is aching to put an end to a devastating 2020, oil producers are now assessing the lasting effect of the pandemic into 2021 – and in particular, the consequences of oil demand destruction to global balances. The existing OPEC+ group deal saved the market from collapsing earlier this year, but then Covid-19 came back with a second-wave vengeance. If output increases as planned from January, the world will have to face a new 200-million-barrel surplus through May, Rystad Energy calculates.
The OPEC+ group will be debating whether or not to maintain its currently curtailed oil production levels to 2021 or to increase them as planned by nearly 2 million barrels per day (bpd). The existing plan was drafted during the pandemic’s first wave and under a more optimistic forecast for end-year oil demand, which turned out to be too high as the pandemic’s second wave brought new lockdowns globally.
Rystad Energy’s balances show that should OPEC+ fails to amend its existing deal and increases its production, the world in January will face its biggest monthly glut since April 2020 with an average daily surplus of 3.1 million barrels for the month. Smaller surpluses are bound to continue through May, building a total glut that will exceed 200 million barrels for the first five months of 2021, before finally starting to shrink from June.
Modeling a possible decision by OPEC+ to postpone its production increase, Rystad Energy has also calculated the effect on global oil balances of three-month and six-month extension scenarios.
If OPEC+ postpones its planned January production increase by three months, we will still see consecutive monthly surpluses through May, but the total size will be limited to about 115 million barrels. Should, however, OPEC+ take the brave call to extend the current status quo for six months, then surpluses will end after March, leaving behind a smaller, three-month glut of just 90 million barrels, which will be erased by the end of June due to deficits coming from April.
