Citi, Vitol see oil demand recovery into 2021

Oil prices and demand are broadly expected to recover in this year's final quarter and in 2021, according to a panel discussion today during the virtual Platts Asia-Pacific Petroleum Conference (Appec) 2020.

US bank Citi expects Brent crude benchmark prices to average $48/bl in the fourth quarter and to average about $60/bl next year, keeping in mind assumptions in terms of discipline, lost production, lack of capital spending, resurgence in capital spending and more, according to the managing director and global head of commodities research at Citigroup Ed Morse.

"By the time we get to the end of October or early November, just looking at supply and demand, it'll be 9mn b/d or less oil supply than a year ago. There'll be 4mn-5mn b/d less refinery demand for crude and that spells a very hefty inventory draw so the market's not really pricing it in at the moment but we think that that's where it's going," Morse told the panel.

Oil trading firm Vitol's global head of research Giovanni Serio agreed with this outlook for 2021. "Based on the probability of having an effective treatment for the [Covid-19] virus, a second wave, next year might have upsides because the market is right now not pricing in an optimistic scenario that is very likely to materialise next year," he said.

"We're going to have some kind of recovery in demand. We don't expect demand to go back to 2019 and by 2022. But definitely if treatment and eventually some probability of a vaccine comes into place the rebound in demand should allow this big buffer, a billion barrels of inventory to draw down by the middle of next year," Serio added.

But he cautioned that the risks were skewed to the downside in a way that has never been seen before. "If you consider probability of a second wave, delaying the deployment of the vaccine, the US elections… we have high risks to the downside."

Serio expected demand for jet fuel to remain weak in 2021. "We have a recovery in pretty much everything by the end of next year except for jet. Jet is one that is going to take the longest to recover and I think in general, the market needs to send a signal to the refining system, that it needs to minimise yields because demand is not going to be there. Unless there is a super optimistic scenario in terms of a vaccine up until 2022. So the outlook for the cracks really depends on how effective the incentive to minimise the yield is and the general outlook for the refining system," he added.

By Yvette Choo