The state of the oil market in 2021 will depend on three distinct factors, according to U.S. consulting firm Wood Mackenzie. First, the fight against Covid-19. Second, decisions made by OPEC+. Third, the trajectory that the energy transition will take, especially for the refinery sector.
The oil market between Covid-19 and OPEC decisions
96.7 million barrels sold per day in 2021 despite Covid-19
The oil market has been largely impacted by the coronavirus pandemic. However, Wood Mackenzie expects demand in the oil market to pick up again in 2021. The firm estimates that 96.7 million barrels will be sold per day, 6.3 million more than in 2020.
These predictions remain conditional on an acceleration of vaccination campaigns. They also depend on a 5% growth of the world GDP.
OPEC+ and the difficult balancing of the oil market
OPEC+ has made concessions to stabilize the world oil price. It mainly agreed not to lower its production restrictions below 5.8 million until the third quarter of 2021. However, Wood Mackenzie fears a rapid increase in production as early as April.
Many OPEC+ members are in favor of this, especially to finance their fight against the pandemic. Refineries, lacking raw material, are also pushing for this.
European oil refineries on borrowed time
Strong competition from Asian refineries
Refinery utilization in 2021 will remain low in Europe despite the relative increase in demand. The pandemic and production restrictions will be compounded by the commissioning of new facilities in Asia. The latter, integrating petrochemical and refining activities, will apparently undermine European competition.
Asian refineries are also fortunate to benefit from local demand strengthened by a rapid economic recovery. This allows them to secure their margins while offering more competitive prices in Europe than local providers. They also benefit from reduced freight costs thanks to the recently commissioned supertankers.
Renewable energies to the rescue of refineries?
The energy transition and the aspirations of oil companies committed to achieving carbon neutrality could benefit threatened refineries. They would allow them to convert to the production of liquid renewable energies.
In this sense, California, which wants to convert its vehicle fleet to low-carbon fuels, is encouraging this conversion. The forecast demand for renewable diesel is so strong that it is attracting suppliers from around the world to the market.