OPEC and partners are betting on a significant boost in oil demand over the coming months as member states get ready to ramp up oil production. OPEC, Russia, and their allies are planning to increase oil production by 2.1 million bpd by as early as July this year, suggesting the confidence they have in a market rebound. The organization’s output cuts of 7 million will be eased significantly each month between now and July.
Saudi Arabia is also expected to ease its voluntary output cuts to increase production by 1 million bpd by July.
The announcement to ease restrictions comes unexpectedly as the oil industry is once again suffering from increased Covid-19 restrictions as Europe and parts of Latin America go into a third wave of the pandemic.
Oil prices have dropped to the lowest in almost two weeks as European lockdown measures continue to be extended, leaving the market unsure of upcoming demand trends. Futures in New York fell 4.6 percent on Monday, from $64.86 a barrel on April 1 to $62.15, which decreased oil prices to below the U.S. crude’s 50-day moving average.
OPEC will be hoping that prices remain generally high as production increases, relying on the international market to soak up the higher crude production by the summer months. However, it will be battling with restrictions on travel, closed businesses, and the new working-from-home norm. However, optimism around the vaccine rollout continues, as the U.K. has given the first vaccine to almost half of the population, and the U.S. to over 30 percent of the population. While vaccination programs in the rest of Europe and North America are moving at a slower rate, there is still hope that many countries will catch up by late 2021.
Vitol, the world’s biggest independent oil trader, stated this week that it expects oil demand to increase over the next decade but warns jet fuel recovery will be slower. While certain oil sectors will remain stagnant, others are expected to increase, including light ends used in manufacturing.
Platts Analytics is also optimistic about the 2021 rebound, anticipating an oil demand growth of 5.9 million bpd this year, in comparison to the 9 million bpd decrease experienced in 2020. The firm expects demand to climb steadily before plateauing at an estimated 113.5 million bpd in the late 2030s.
The increase in demand will come predominantly from Asia, as China and India’s energy needs are steadily increasing as already developed markets, such as Europe and North America, are expected to stagnate.
OPEC+ is looking increasingly toward India and its oil refiners, as Saudi Arabia hopes to forge strategic relations with one of the fastest-growing downstream markets in the world. At present, the Arab Gulf States account for around 20 percent of India’s total import bill, which is dominated by oil and gas.
While Covid-19 restrictions continue to hamper oil demand, optimism around the vaccine rollout as well as increased demand from emerging markets suggests OPEC’s plan to ramp up production will be met with enthusiasm.