The Organization of the Petroleum Exporting Countries (OPEC) on Tuesday formally raised its expectations for global oil demand in 2021, citing expectations for a recovery from the pandemic and stronger economic growth.

Crude Oil Prices

In its Monthly Oil Market Report (MOMR), the cartel projected demand would rise by 5.95 million b/d this year, a nearly 7% increase from 2020. The estimate is up 70,000 b/d from the group’s earlier outlook in March.

“Gasoline is projected to be the key driver for oil demand recovery beginning with the onset of the summer driving season,” OPEC said in the MOMR.

“As the spread and intensity of the Covid-19 pandemic are expected to subside with the ongoing rollout of vaccination programs, social distancing requirements and travel limitations are likely to be scaled back, offering increased mobility in various parts of the world,” the cartel added.  

Earlier this year, OPEC had lowered demand expectations, curtailed production and expressed concerns about the pandemic’s ongoing impacts, notably including new lockdowns in Europe.

At the start of April, however, the Saudi Arabia-led cartel and its allies, aka OPEC-plus, shifted gears and agreed to ramp up crude production, citing expectations of mounting demand over the summer and into the fall. The allied group of leading producers agreed to boost output by 350,000 b/d in May and June, and then increase to as much as 450,000 b/d in July. Saudi Arabia also plans to begin unwinding cuts it made earlier this year.

In total, analysts at BMO Capital Markets estimated that the changes would represent an increase in OPEC-plus production to 38 million b/d in July from about 35.5 million b/d in March, “largely due to the unwinding of Saudi Arabia’s extra voluntary cut of 1 million b/d.” Prior to the pandemic, the analysts said, the cartel and its allies produced about 41.3 million b/d.

Considering the decision to increase production, it would have been “rather embarrassing for the producer group to cut their global demand number,” said analyst Robert Yawger, director of energy futures at Mizuho Securities USA LLC.

OPEC also raised its forecast for 2021 economic growth to 5.4% from 5.1%.

In its new report Tuesday, OPEC officials said the earlier limits on production had helped to align supply/demand, and they noted that output remains below 2019 levels, leaving room for pockets of demand weakness in the months ahead.

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“With regard to global inventory levels, there have been sizeable drawdowns since the middle of 2020 and these are expected to continue in the coming months, mainly due to the successful efforts” of the earlier OPEC-plus limits, the cartel said. “These reductions in surplus inventories as well as an expected pick-up in product demand will pave the way for a cautious recovery of oil market balance in the summer months, supporting refining margins and throughputs.”

However, the group added, “the large uncertainty surrounding the fragile recovery from the unprecedented impact of Covid-19 continues to require vigilant monitoring of market developments, despite the wide-ranging stimulus measures and early signs of a return to normalcy as progress continues on vaccination programs in many major economies.”