THE oil and gas (O&G) industry will remain susceptible to any negative outcome from the COVID-19 pandemic in 2021.
Oil supply is envisaged to remain in excess going into the first half of 2021 (1H 2021) if compared to demand following the resurgence of COVID-19 cases which saw elevated new average daily cases in the past few weeks in Europe, according to MIDF Research.
The surge in average daily new cases has brought about a fresh new set of lockdowns in several European countries such as the UK and France which could further derail demand recovery.
“COVID-19 has effectively wiped out 30% of the global crude demand in the first few months of its spread and demand has yet to recover to the pre-pandemic level,” cautioned analyst Noor Athila Mohd Razali in a sector update.
Globally, the International Energy Agency (IEA) is expecting demand to grow by +5.5 million barrels per day (mbpd) to 97.2mbpd against 91.7mbpd this year.
Meanwhile, supply is expected to rise by +1.6mbpd in 2021, higher than demand which will result in continued oversupply of crude in the market during the year.
While a continued production cut into 2021 is favourable to arrest the decline in oil price as a result of the continued oversupply in the market, the research house expects mild impact on the upward trajectory of oil prices should the Organisation of Petroleum Exporting Countries and its allies (OPEC+) decide to extend or deepen the production cut.
“This is as we anticipate the recovery in oil price will correlate more with the COVID-19 vaccine progress as it signals the potential return in demand and represents economic recovery in 2021,” opined Noor Athila in an O&G sector update.
“Furthermore, we believe that the decision will have a mild impact on oil price recovery given that we are still expecting supply to remain in excess of demand in 2021.”
Moving forward, MIDF Research expects the prices of crude oil prices to be range-bound at between US$45 to US$50 per barrel in the 1H 2021 with supply to remain in excess of demand.
For the full-year 2021, the research house projects oil prices to average at US$51 per barrel with the major recovery expected to take place in 2H 2021 should COVID-19 is well-contained worldwide and a vaccine is successfully developed.
All in all, the research house maintained its “neutral” stance on the sector for both upstream and downstream sub-segments given that it foresees that the sector will continue to be susceptible to the ongoing development of COVID-19 pandemic.
With expected subdued exploration and production (E&P) capex spending and demand returning for oil-related products globally to be underpinned by COVID-19 recovery, MIDF Research expects significant uptick in activities within the O&G sector to take place in 2H 2021 despite the recent positive development of the COVID-19 vaccine progress. – Dec 3, 2020
