The outbreak of COVID-19 pandemic had an unprecedented and devastating impact on the global economy and oil market fundamentals in 2020. While the market still finds itself in the midst of the crisis, gradual stabilization is expected to begin in 2H20, leading to a cautious forecast of renewed growth in the year to come.
GDP growth in 2021 is forecast at 4.7%, following a contraction of 3.7% seen this year (Graph 1). This assumes that COVID-19 is contained, especially in major economies, allowing for recovery in private household consumption and investment, supported by the massive stimulus measures undertaken to combat the pandemic. The 2021 forecast assumes no further downside risks materialize, particularly from trade related issues. Growth risks include high debt levels, which could pose serious challenges for anticipated growth, not only due to general limitations in fiscal space, but also a rise in debt-services. Indeed, the magnitude of the recovery in the travel and hospitality sector, along with general leisure services and transportation will be significant to economic recovery in 2021.
Global oil demand in 2021 is projected to recover strongly from the downturn seen in 2020 (Graph 2), registering historical high growth of 7.0 mb/d although remaining far below the preCOVID-19 level. Encouraging improvements in economic momentum are assumed to be the driving factors for increasing demand in 2021. In regional terms, the OECD is estimated to contribute around 3.5 mb/d to growth, driven by positive developments in OECD Americas. In the non-OECD, growth in petroleum product demand is also estimated at 3.5 mb/d with Other Asia and China contributing a combined increase of more than 2.4 mb/d. Gasoline and diesel are anticipated to record the highest y-o-y gains as both products are foreseen rising by more than 3.8 mb/d. Jet fuel is expected to only partially recover, growing by 0.8 mb/d, as international travel will remain under pressure for the whole of 2021; lower travel and commuting activities will affect transportation fuel demand in general.
Non-OPEC oil supply is forecast to grow by 0.92 mb/d in 2021, following a deep contraction in the current year. This is mainly driven by an expected recovery in demand and a likely improvement in oil prices to levels that would lead to increased activities by US producers. US production in 2021 will see only a minor growth of 0.24 mb/d, compared to the growth of 2.3 mb/d seen in 2018 and the 1.7 mb/d seen in 2019. US tight crude is expected to grow by 0.24 mb/d, mainly from the Permian Basin, offset by declines in onshore conventional crude. In North America, Canadian production is expected to recover, although pipeline constraints are likely to persist.
Oil production in countries such as Norway, Brazil, and Australia is expected to increase through the ramping up of existing projects and new field start-ups. In contrast, natural decline in Egypt, Mexico, Thailand, Colombia and Kazakhstan is expected to offset some of this growth. Investment in Exploration and Production (E&P) in non-OPEC countries is expected at around $323 bn in 2021, with US shale at around $63 bn, down by $100 bn from the peak levels seen in 2014. Overall, the outlook for 2021 remains dependent on the considerable uncertainties in 2021, both to the upside and the downside. At the same time, the historic cooperation between OPEC Member Countries and non-OPEC countries participating in the Declaration of Cooperation (DoC), together with the supportive actions of many of the G20 producers, have helped the global oil market, and hence the world economy, to overcome recent unprecedented challenges. The historic decisions taken amid a vast range of uncertainty have provided a substantial and highly effective contribution, paving the road for the global economic and energy markets recovery in 2021.