Global oil demand is forecast to increase by 5.9 million bpd in 2021 amid economic recovery

The US supply forecast was revised up as oil prices trade higher, according to Opec

Supply of crude is also expected to increase, rising by over 1m bpd in 2021, after declining by a record 6.6m bpd last year. Reuters

Opec left its oil demand forecast for 2021 unchanged from last month’s assessment at 5.9 million barrels per day as global economies continue to recover from the coronavirus pandemic.

Oil consumption in the OECD (Organisation for Economic Co-operation and Development) region is estimated to increase by 2.6 million bpd year-on-year, while in non-OECD countries demand is set to grow by 3.3 million bpd.

The growth in demand in non-OECD countries will be driven by China, India and other Asian countries, according to the Opec monthly oil market report. Demand is also expected to be high in the US and other countries.

The non-Opec supply forecast also remains unchanged, with growth expected at 0.8 million barrels per day in 2021, according to the report.

“The upward revision in US supply offset the downward revision in the supply forecast for Russia. Market conditions have improved for US shale as oil prices have moved into a range where output is likely to recover at a higher-than-expected rate in the second half of 2021,” Opec said.

As a result, the US supply forecast was revised up to average just under 18 million bpd representing year-on-year growth of 400,000 barrels per day, according to the report. The main contributors to supply growth are expected to be the US, Canada, Brazil and Norway.

The latest assessment from Opec came as the UAE's energy minister Suhail Al Mazrouei on Wednesday cautioned US shale producers not to overproduce and flood the market amid higher oil prices.

"The producers need to be careful not to over flood the market," Mr Al Mazrouei told the Gulf Intelligence Global UAE Energy Forum 2021. "I think they are wise not to jump the gun and over produce during the recovery," he added.

Opec also expects the global economic recovery to “gain traction” towards the end of second quarter of 2021 as countries roll out vaccines to treat the coronavirus pandemic.

“Momentum is expected to be led by consumer spending, especially in the contact-intensive services sector, and particularly in the areas of travel, leisure and hospitality,” it said.

"The seasonal aspect of warm weather in the northern hemisphere and the travel season at that time will provide additional support factors.”

Opec+, the international coalition of producers led by Saudi Arabia and Russia, has been taking action to prevent an oversupply in the market since 2016.

Last week, Saudi Arabia announced a surprise unilateral one million barrels per day production cut as a "goodwill gesture" that gave fellow producers Russia and Kazakhstan leeway to ease their production curbs to meet demand through the winter.

Brent, the global benchmark for two-thirds of the world's oil, dropped 1.2 per cent to $55.39 per barrel at 6.05pm UAE time. US crude gauge West Texas Intermediate also slid 0.76 per cent to $52.51 per barrel.

“Looking at the bigger picture, the $50 floor is not in danger as we see it, there are solid reasons for oil prices to remain healthy,” Bjornar Tonhaugen, head of oil markets at Rystad Energy, said. “Gains above that level though will be fluctuating based on infection numbers and demand signals.”