Oil Market Quarterly Review

Executive summary

• In January-February 2021, the market was seized by waves of optimism amid positive news about vaccination successes in some regions, a stable oil demand recovery, and effective OPEC+ actions to maintain market supply restrictions. This positive background resulted in a price rally to UDS70/bbl. However, a number of negative events towards the end of the quarter adjusted the price to the levels of USD60-65/bbl.
• Significantly, the oil market has approached an equilibrium state. Due to the steady excess of demand over supply, free oil stocks in storage facilities are gradually decreasing. From a maximum level of 3.3 bln bbl in mid-2020 stocks have already decreased by more than 300 mln bbl. Unofficial supplies of oil from Iran to China in the amount of about 1 mln bbl/d prevented a more rapid achievement of equilibrium. These supplies allow China to hold back its strategic oil reserves, accumulated during the pandemic.
• Despite all the informal signals from OPEC+ and Saudi Arabia, and indicated intentions to maintain the restrictions, on April 1, it was decided to gradually increase oil production from May to July. The additional volume to be brought to the market by OPEC+ within 3 months will amount to 1.15 mln bbl/d. At the same time, Saudi Arabia lifted the voluntary cap of 1 mln bbl/d. Taking into account the current restrictions in the amount of about 8 mln bbl/d, it can be expected that by the end of July the figure will decrease to nearly 6 mln bbl/d. However, it should be noted that OPEC+ will continue to monitor the market situation and, in case of negative events, may reconsider its decision at the next meeting in late April, even before it comes into force.
• A wave of positive sentiment that swept through the markets at the beginning of the year, as well as the rally in spot prices to USD70/bbl could not but affect the long-term forecasts of analysts. Some forecasts emerged claiming the beginning of a new price growth wave and reaching the price of USD100/bbl in the coming years. However, there was no significant revision of long-term values which are based on fundamental factors. The consensus forecast added USD3/bbl as compared with the December 2020 review, coming very close to USD60/bbl (real values).

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