GS Revises Down Oil Forecasts in 2021, IEA Expects Vaccines to Slightly Boost Demands

Goldman Sachs (GS) lowered its oil forecasts in 2021 as Europe entered lockdowns and Libyan ramp-up productions. Meanwhile, IEA stated that the demand would remain more or less the same until some time into next year, even with the coming of the coronavirus vaccine.

Initially, GS forecasted oil prices at $51/$57.5/$64/$65 in 1Q21-4Q21, but then lowered its forecasts to $47/$51/$59/$63 after the coronavirus, especially in Europe, did not ease up. The financial services company also stated that regarding the delay of OPEC+ production ramp-up by three months at the beginning of 2021, Brent will trade in a fat and flat range through 1Q21, then resume rally during 1H20 and higher in June.

 

In the meantime, International Energy Agency (IEA) stated in the Oil Market Report in November that weak historical data and the resurgence of Covid-19 in Europe and the United States led the organization to revise down its near-term global demand outlook by 0.4 mb/d in 3Q20, 1.2 mb/d in 4Q20 and 0.7 mb/d in 1Q21.

IEA now expected demand to decrease by 8.8 mb/d in 2020 (versus 8.4 mb/d in last month’s Report) and to rise by 5.8 mb/d in 2021 (versus 5.5 mb/d last month). Vaccines are unlikely to significantly boost demand until well into next year. IEA stated that it is far too early to know how and when vaccines will allow normal life to resume.

 

Global oil supply rose by 0.2 mb/d m-o-m to 91.2 mb/d in October. Production from countries participating in the OPEC+ agreement held largely steady. Overall compliance was 103%. In November, world oil supply may rise by over 1 mb/d as the US recovers from hurricanes and Libya continues to bounce back. Output from producers outside of OPEC+ is set to fall by 1.3 mb/d in 2020 and rise by 0.2 mb/d next year. US supply falls by 600 kb/d in 2020 and by 655 kb/d in 2021.

 

Global refining throughput fell in September as US hurricane shutdowns were not fully offset by higher activity elsewhere. Permanent shutdowns of refinery capacity now amount to 1.7 mb/d, but there remains significant structural overcapacity with more than 20 mb/d of crude distillation capacity idle. In October, the modest fall in crude prices and tighter product markets contributed to generally stronger cracks, except for gasoline.

 

OECD industry stocks fell for the second consecutive month by 19.7 mb (0.66 mb/d) in September to 3,192 mb, and were 225 mb above their five-year average. OECD industry crude stocks are only 51 mb below their peak in May. In 3Q20, observed global stocks fell by 0.8 mb/d. Preliminary data for October show crude stocks falling 8.4 mb in the US, 8.3 mb in Europe and 1.2 mb in Japan. In October, volumes of crude oil held in floating storage decreased by 17.8 mb to 156.3 mb.

 

Despite October being volatile, ICE Brent futures fell only $0.35/bbl versus September to $41.52/bbl. The contango deepened slightly, but forward curves fell below $50.00/bbl for ICE Brent through mid-2028. North Sea Dated discounts to futures widened in October, emphasising the supply overhang. Freight rates continued to fall for crude tankers, paralleling the fall in activity. News of a potential Covid-19 vaccine saw Brent futures climb above $45/bbl earlier this week.