FITCH Solutions Country Risk & Industry Research projected that 2021 will be a year of two halves marked with volatility. The market has already begun to price-in optimism stemming from positive progress made towards COVID-19 vaccines, and strong economic performances from the likes of China and the US through third quarter of 2020 (3Q 2020).
“The global growth rebound in 2021 will be sharp and robust as COVID-19 headwinds ease. This supports an upward revision of our price expectation for the year contraction to US$53 per barrel from US$48 per barrel forecast previously. Following a 4.0% in 2020, our economists forecast growth in global real gross domestic product (GDP) to expand by a robust 5.4% in 2021, in large part due to base effects but also as halted economic activities are resumed after months long hiatus,” said Fitch Solutions.
However, the degree of bullishness looks set to level off over the first half of 2021 (1H 2021), as resumption of lockdowns in key markets such as the US, Europe and the Middle East drag on demand recoveries and market confidence.
The rollout of COVID-19 vaccines across global markets is projected to occur over the next 24 months reaching most markets by 2H 2021, and thus supports the stronger narratives for the second half of the coming year both from an economics and fuel demand growth perspectives.
As the distribution of vaccines will be staggered with wealthier, more-developed countries gaining access first, growth rebounds in smaller, less-developed markets are likely to take longer, and risks of infection resurfacing in these markets are higher.
Meanwhile, fuel demand is expected to recover over 2021 to 2022 flattered by base effects, but beyond this, growth rates will soften.
The pickup in consumption will help to push prices higher over the five-year forecast period, although bloated crude inventories, the unwinding of the OPEC+ production cuts and return of barrels from Libya, Iran and the US provide downside pressure over the medium term.
That said, the global growth outlook beyond 2021 is not bearish and global real GDP growth will continue to spur demand for oil.
However, slower economic expansion – led by structural deceleration in the US and China – will weigh on the pace of growth, combining with longer run trends towards rising energy efficiency, falling energy intensity and the shift towards low-carbon alternative fuels.
In addition, 18 out 25 largest oil consumers globally (which together account for over 80% of global demand), are set to see significant slowdowns in their ‘fuel demand’ growth over the coming five years.
“For the group as a whole, we forecast net demand growth over 2020 to 2024 to be only 26.1% of the growth that was registered over 2015 to 2019,” the research house added. – Dec 2, 2020