OPEC trims oil demand forecast

While Brent and WTI are holding steady at the time of writing above $50 and $47 each, OPEC as recalibrated its oil demand forecast. Could this put pressure on prices?

Oil trading

OPEC and allies have once again dropped their 2020 oil demand forecasts according to the latest version of the Monthly Oil Market Report (MOMR) published on Monday.

OPEC now expects global oil demand to fall to 9.77 million barrels per day in 2020 to reach 89.99m bpd this year, compared to over 90m bpd in its November estimations.

2021 oil demand is now forecast to 95.89m bpd. That’s down 410,000 from the original OPEC projections published in the November MOMR. In October, OPEC had estimated 2021 oil demand to be 96.8m bpd.

This comes off the back of the cartel’s decision to begin an easing of production cuts. The new total OPEC production quota, as of January, is estimated to be 22.119 million bpd, up by 304,000 bpd from its quota between August – December. The non-OPEC quota is estimated to be 196,000 bpd.

Why the downbeat forecast? Coronavirus cases continue to rise in the US, with deaths now unfortunately above summer peak levels. Vaccines are giving hope, but it appears that the oil world is bracing for another worst-case scenario.

Despite this, as mentioned above, Brent and WTI prices continue to hold steady after the autumn/winter rally they’ve been experiencing in the past couple of months. Vaccine hopes mean futures buyers are feeling bullish on the reopening of the global economy and are looking past near-term demand worries to a stronger 2021.

The first US frontline worker was vaccinated on December 14th as the US begins its own rollout. The UK’s is already underway. Hopefully this will instil more confidence but given the topsy turvy year 2020 as turned out to be, you can hardly fault OPEC for taking a more cautious line.

Meanwhile, an oil tanker explosion off the Saudi coast may be underpinning near-term geopolitical risk premium. The tanker was allegedly hit by a bomb-laden boat off the coast of Jeddah, Saudi Arabia, on Sunday 13th December.

Natural Gas

Natural gas prices finished lower last week, but nowhere near all-time lows. The 15-day weather forecast suggests December will continue November’s trend of being one of the hottest on record.

Gas demand could be low if these forecasts hold true. US total working gas storage is up 7.2% against the five-year average for this time last year, according to EIA reports.