By Udeme Akpan
Despite the stability of oil prices at $50 per barrel in recent times, the Organisation of Petroleum Exporting Countries, OPEC, has painted a mixed oil market outlook for 2021.
In his Opening Remarks at the 47th Meeting of the Joint Technical Committee (JTC), January 3, 2021, via videoconference, HE Mohammad Sanusi Barkindo, OPEC Secretary General, said: “Amid the hopeful signs, the outlook for the first half of 2021 is very mixed and there are still many downside risks to juggle. We are only beginning to emerge from a year of deep investment cuts, huge job losses and the worst crude oil demand destruction on record. Curbs on social and economic activity remain in place in a number of countries, and there is concern about the emergence of a pernicious new strain of the virus. Last night I saw on the news there are now about 30 countries that have reported this new strain.”
According to him, “Though the ongoing restrictions are necessary to combat the pandemic, they have chipped away at business sentiment and consumer confidence in some of the world’s biggest economies. It is too early to tell how quickly key sectors will bounce back to their pre-pandemic growth trajectories even if the vaccines defeat this terrible virus. Mr Chairman, sectorally, travel, tourism, leisure and hospitality continue to be affected. Our projections show that there will be rebound in the second half of 2021 with upside potential. However, it could be another a couple of years before these sectors bounce back to pre-COVID levels, with corresponding lagging impact on oil demand.
“The Christmas Eve trade agreement between the United Kingdom, UK and European Union, EU is a promising development for the recovery process after months of very difficult and rancorous negotiations. Stimulus packages have clearly helped prevent deeper economic contractions and continue to lend crucial recovery support. The EU and US have now approved measures which, taken together, provide nearly $2 trillion in additional support for those economies. It is worth noting that fiscal and monetary stimulus packages in the G20, including bank guarantees, have reached $25 trillion, corresponding to more than 20 per cent of the global economy.”
Declaration of Cooperation
He said: “Tomorrow, we begin a new chapter in the Declaration of Cooperation (DoC) with the start of monthly OPEC and non-OPEC Ministerial Meetings to evaluate the market. It was only one year ago that the DoC participating countries began to introduce adjustments of a then-astonishing 1.7 million b/d, with additional voluntary contributions pushing that number to 2.1 million b/d. How times have changed. These adjustments, as agreed at the 7th OPEC and non-OPEC Ministerial Meeting in December 2019, were a pre-emptory response to support continued stability in 2020, actions that were welcomed widely as the market rang in a new and promising year. Looking back at the projections provided by the JTC, I don’t think anyone could have done a better job.
“In retrospect, those efforts taken at the end of 2019 pale in comparison to the scope and scale of the actions we have carried out since a series of ground-breaking Ministerial Meetings in April, June, and culminating in the visionary decisions taken at the last meeting one month ago today. The outcome of the December 3rd Ministerial Meeting paved the way for a gradual return of 2 million b/d to the market over the coming months, while the participating countries stand ready to adjust these levels depending on market conditions and developments.”
He said: “Collectively over the last nine months, we have delivered an unprecedented response to an unparalleled market shock and continue to lead the industry on the road to recovery. We are witnessing the very early stages of COVID-19 vaccinations and the progress so far has injected optimism into the economy. These promising developments, in parallel with the Declaration of Cooperation’s market leadership during the crisis, have contributed to a healthier oil market outlook for 2021.
“Following the last Ministerial Meetings, the price of Brent crude inched above $50 per barrel for the first time since early March, while Brent crude and US West Texas Intermediate experienced their longest stretch of advances since June. After the unprecedented shock experienced last year, the economic forecast calls for brighter days ahead. Our analysts expect the global economy to grow by 4.4 per cent in 2021 compared to a sharp contraction of around 4.2 per cent last year. The COVID-19 vaccinations provide upside potential for the economic outlook and may help usher in a strong rebound in the second half of 2021.”
He added: “Furthermore, we continue to see upward momentum in Asia, especially China, which remains on course for positive growth in 2020 – a singular achievement among the world’s biggest economies. China’s broad-based recovery forecast stands at about 6.9 per cent for 2021 and provides a beacon of hope for other economies, in the region and beyond. Our analysts in the Secretariat anticipate that crude oil demand will shift from reverse to forward gear and rise to 95.9 million b/d this year, a gain of 5.9 million b/d from 2020. The non-OECD will be in the driver’s seat with growth of around 3.3 million b/d.”