UAE sees oil demand recovering by late 2021: Update

Updates throughout

UAE energy minister Suhail al-Mazrouei said today that he is optimistic that global oil demand will return to pre-pandemic levels by the end of this year, or early in 2022 at the latest.

"I'm more optimistic than the numbers, because I'm confident that the [Opec+] group will continue working hard to ensure that we are balancing the market faster than we anticipated," al-Mazrouei told the Gulf Intelligence Global UAE Energy Forum. "We have seen that the recovery has been, I think, better than anyone was expecting."

"As we are going into the first months of the year, I'm optimistic that by the end of the year, or beginning of 2022, we will see that balance," he said.

This is a markedly more optimistic assessment than some others in the industry. Speaking at the same forum today, the group manager of Nigerian state-owned oil firm NNPC, Mele Kyari, and the president of Saudi-based energy think tank Kapsarc, Adam Sieminski, both expressed doubts that oil demand will recover to pre-Covid levels before the end of 2022. In its latest forecasts, the Opec secretariat projected that demand will rise by 5.9mn b/d to 95.89mn b/d this year, which is around 4mn b/d below the 2019 average and more than 6mn b/d below its initial 2021 forecast made before the pandemic.

Al-Mazrouei caveated his forecast with a warning aimed at producers outside the 23-member Opec+ coalition, namely those in the US shale patch, to resist the urge to ramp up production in response to rising oil prices. "I think all producers need to be careful not to overflood the market," he said. "When it comes to shale oil, they faced a very challenging year during 2020, and from the investors' point of view, it's not going to be to just go and build production seeing where inventories are today, they have to be cautions ... I think they are wise not to jump the gun and overproduce during the recovery year [2021]."

Al-Mazrouei hailed Saudi Arabia's "generosity" in agreeing to a unilateral 1mn b/d crude output cut in February-March, on top of its existing Opec+ commitments. This will more than compensate for Russia and Kazakhstan's higher quotas, he said. Saudi oil minister Prince Abdulaziz bin Salman described the move as "pre-emptive action" should "things go bad".

Going into the latest Opec+ ministerial meeting earlier this month, there was overwhelming support among members to keep quotas unchanged next month, given the lingering uncertainty in the market. But in the face of resistance from non-Opec heavyweight Russia and Kazakhstan — which both favoured another 500,000 b/d increase in February — the group arrived at a compromise. Production ceilings for Russia and Kazakhstan will go up by 65,000 b/d and 10,000 b/d, respectively, in February and by the same amount in March, while all other participating countries will keep the same quotas as in January.

Iranian oil minister Bijan Namdar Zanganeh said on the sidelines of the December ministerial meeting that Russia and Kazakhstan's argument for an increase in quotas focused on concerns that an extended period of cuts will leave the group open to losing market share. But al-Mazrouei said he is "not worried" about this and insisted that the Opec+ group should not be concerned either.

"We are not looking at it from the market share point of view," al-Mazrouei said. "We are the lowest-cost producers… so we know for a fact that when the situation is normal, we can easily get back to the market share that is normal for this group," he said. "If every country is looking to its market share, we will not balance the market."

By Nader Itayim