Oil market quarterly review

Q2 2021

Q2 2021

Executive summary

  • After nearly a year of tight supply constraints from OPEC+, global oil stocks accumulated during last year’s COVID-19 demand shock began to decline rapidly. In April, total OECD oil stocks fell by around 60 million barrels below the 2016–2020 average, and for the first time crossed the average mark for the five-year pre-COVID period (2015–2019).
  • The wave of optimism that swept through global markets led to accelerated growth in commodity prices, including the price of oil. As a result of outstripping growth in demand and the artificial oil market deficit created by OPEC+ countries, the price of Brent oil in the second quarter of 2021 entered a stable range of 70-75 USD/bbl. Nevertheless, as there were no changes in fundamental price formation factors, the longterm forecast was unadjusted and remained at around 60 USD/bbl in 2021 prices.
  • OPEC+ meetings in early July produced no resuts due to the position taken by the UAE on the terms of the extension of the oil deal. As a result, the parties to the deal only reached an agreement at the end of July. Oil production will increase by 0.4 mln bbl/day monthly from August to the end of 2021. According to preliminary agreements, it is highly likely that OPEC+ will adhere to this pace in 2022. Thus, according to current plans, the OPEC+ deal may be completed in September 2022. Disagreements between OPEC+ members which emerged during the negotiations increase uncertainty over future deal adjustments, which in turn complicates the process of forecasting short-term price dynamics.
  • A significant shortage of capital expenditure in new oil and gas projects could trigger a supply shortage in the oil market in the next five-to-10 years. At the end of 2020, investments were down 30% on the average five-year level, while a recovery in investment activity is expected only by 2025. In addition to the high cost of new shale and offshore projects, the stagnation in investment activity is facilitated by a strengthening of the climate agenda and plans announced by the world’s leading oil companies to reduce their carbon footprints.

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