January 19, 2021
Markets PAID

Oil Demand Recovery Set to Fall Short of Pre-Covid Levels This Year

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OPEC expects stronger production forecasts for the U.S. this year to be counterbalanced by weaker output from Russia.

OPEC expects stronger production forecasts for the U.S. this year to be counterbalanced by weaker output from Russia.

Photo: leonhard foeger/Reuters

Global appetite for oil will remain subdued in the first quarter of 2021 due to coronavirus lockdown measures and rising infection rates, the Organization of the Petroleum Exporting Countries said Thursday.

In its monthly report, OPEC maintained its forecast that world oil demand in 2021 won’t recover to the levels seen before the pandemic. Global demand took a 10% hit last year and the cartel expects it to rebound to 95.9 million barrels a day this year, but remain 4% below 2019 levels.

Despite the beginning of vaccination programs in recent weeks, rising infection rates in wealthy Western nations are continuing to stymie an economic recovery, OPEC said. In Europe, government restrictions are forecast to significantly hurt growth again in the first quarter of 2021, it added.

While the economic impact of the virus is continuing in richer Organization for Economic Cooperation and Development countries, demand in large non-OECD nations such as China and India has recovered strongly. OPEC expects demand in non-OECD countries to increase by 3.3 million barrels a day in 2021.

Oil prices and equities have risen sharply in recent weeks, buoyed by vaccinations and Saudi Arabia’s announcement last week that it would unilaterally cut an additional one million barrels of daily oil production next month on top of the reductions already agreed on between OPEC and its allies.

Brent crude oil, the global benchmark, fell 1.2% on Thursday to $55.40 a barrel. West Texas Intermediate futures, the U.S. gauge, were up 0.9% at $52.45 a barrel, despite weekly Energy Information Administration data late Wednesday showing a drop in U.S. crude inventories.

Both benchmarks have jumped more than 7% in the first two weeks of the year, while shares in
BP
PLC and
Exxon Mobil Corp.
have climbed more than 17% in the same period.

The decision of the OPEC-Plus alliance to maintain production curbs for another month helped prices reach levels not seen since last March, with U.S. crude prices breaking through the $50-a-barrel mark, the break-even price for many shale producers, according to

Eugen Weinberg,
head of commodities research at Commerzbank. Still, he added, U.S. producers haven’t yet reacted to that price move.

While OPEC left its non-cartel supply forecast for the year unchanged in its January report, it expects stronger production forecasts for the U.S. this year to be counterbalanced by weaker output from Russia, resulting in non-OPEC production growth of 800,000 barrels a day in 2021.

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Write to David Hodari at David.Hodari@dowjones.com