OPEC+ is meeting today to decide on production levels for May. At last month’s meeting, the group decided that, with the exception of Russia and Kazakhstan, there would be no sizeable increase in output. If Saudi Arabia continues with its extra cut of 1 million barrels per day (b/d) in May, then we expect upward pressure on prices.
For 2021, Wood Mackenzie expects global oil demand to grow 6.2 million b/d year-on-year. We are projecting global stock draws for the second quarter. These will continue through to the fourth quarter this year. That is with a moderate gain in OPEC+ production starting in May. A decision to delay an easing in current levels of production restraint would increase the tightness in the second quarter and potentially boost prices ahead of the peak summer demand season.
When compared against last year’s collapse, we expect a strong recovery in oil demand for the second quarter of 2021, rising over 13 million b/d year-on-year after a subdued gain of just 0.1 million b/d in the first quarter of 2021. The decision to leave output almost unchanged for April shows OPEC+ is reacting to the tepid demand growth of the first quarter. But that trend is shifting in this quarter to much stronger increases with the potential for a much tighter market.
The US Lower 48 is still recovering from a severe drop in its rig count during 2020 and we are forecasting a decline in production again this year for the region. US Lower 48 is projected to fall 0.5 million b/d in 2021. The US is not in a position to even partly offset OPEC+ production restraint.
As OPEC+ meets, the physical oil market is well supplied. However, that will shift over this quarter when we expect total demand to outpace supply. A decision to keep OPEC+ output mostly unchanged for May from April would accelerate the rebalancing and risks overshooting, leaving the market at risk of price volatility. A sharp rise in prices from current levels in the low $60s per barrel would increase the risk of dampening both the global economic recovery and the revival in demand now under way.
