Oil market rebalance in 2H 2021: Argus Consulting

A rebalance in the global oil market will occur in the second half of 2021, according to Argus Consulting Services, a delay from previous forecasts of a mid-2021 rebalancing because of slower demand recovery.

About two-thirds of the collapse in oil demand from April has been recovered, but the pace will likely slow because of "extensive economic scarring, changes in consumer behavior and rising Covid-19 infection rates," Argus Consulting said in its monthly Argus Fundamentals report.

Demand will struggle to return to pre-Covid 19 levels in the near term and will not likely reach that level until 2023 at the earliest, the report said. But this is being offset by the impact of low prices on crude supply.

If widespread lockdowns return, the rebalancing process will slow down even further. But this is unlikely as governments are expected to avoid widespread lockdowns as much as possible even as infection rates rise, according to the report.

Argus Consulting estimates an full-year 2020 oil demand decline of 8.3mm b/d, with a rebound of about 5mn b/d in 2021 and a further 2mn b/d increase in 2022.

Opec+ sticking with the plan

The new Argus Consulting forecast also assumes that that the Opec+ group "sticks to its guns" in its plan to take crude off the market.

Following the high levels of Opec+ production in April, an average of nearly 9.5mn b/d was shut in between May and August. Overall compliance with the Opec+ restraint deal remains high, at 102pc in August, and there are signs that the usual non-performers are not only falling into line but are even starting to make up for their overproduction in the early months of the agreement, Argus Consulting said.

Non-Opec production remains well below pre-Covid-19 levels and will probably stay there for the foreseeable future.

Meanwhile, Opec+ members that exceeded their crude production quotas in recent months are being given until the end of the year to compensate, rather than having to conform by the end of September, as de facto Opec leader Saudi Arabia renewed its push for full compliance.

The Joint Ministerial Monitoring Committee agreed this week to push back the deadline for the compensation mechanism. It made no recommendation to change existing quota levels.

Other groups have also reduced demand outlooks.

The IEA this week reduced its global oil demand forecast for a second consecutive month, citing a resurgence of Covid-19 cases in many countries, local lockdown measures, continued teleworking and the weak aviation sector.

Argus Consulting Services is a division of Argus Media. The group's forecasts and analyses are separate and independent of Argus' news and price assessment business.

By Eunice Bridges