Fitch Solutions: Global roll-out of Covid-19 vaccines is set to provide a boost fuel demand

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Fitch Solutions have maintained their 2021 Brent forecast with the benchmark to set average USD53.0/bbl in 2021, as OPEC looks to poised to regulate oil supply based on monthly changes in the demand outlook.

The research house also pointed out that the global roll-out of Covid-19 vaccines is set to provide a boost to global economic recovery and fuel demand.

“In our view, the early January 2021 meeting of OPEC+ will likely result in a reduction of production cuts as recent price gains look to be consolidating and group members are seeking higher outputs to increase market share. However, fundamentals indicate a more pragmatic approach would be to hold the cuts at the current levels.

We expect 2021 global fuel demand to grow by 4.6mn b/d after falling by 7.1mn b/d in 2020 as the global economy continues to recover and transport and commerce return closer to historic pre-pandemic levels,” it said in a note.

It’s mid-term forecast also takes the view that following pandemic, most markets will experience a lower level of demand growth than was seen prior to Covid-19, reflecting softer real GDP growth, rising energy efficiency, falling energy intensity, fuel switching and persistent social distancing behaviours.

Fitch Solutions also expects 2021 global fuel demand to grow by 4.6mn b/d after falling by 7.1mn b/d in 2020 as the global economy continues to recover and transport and commerce return closer to historic pre-pandemic levels.

The research house also highlighted that OPEC’s actions will likely consider the surge in global fuel demand expected in 2021 and seeks to ensure that all incremental demand is captured by its members.

“Parallel to the surge in demand is a modest increase in supply of 1.6mn b/d coming mostly from OPEC as we forecast US shale output will continue to decline well into 2021. We forecast both supply and demand to return to 2019’s pre-pandemic levels in 2022 as markets find balance given OPEC+ constraints and a clear recovery picture emerging,” it said.

However, the note also stated that the threat of renewed supply from US shale producers and wider demand downside on a weaken global economy present clear upside limits to substantially higher prices from today’s levels.

Additionally, global oil storage remains elevated as pandemic stock builds have yet to be fully worked down and furthermore, future pricing indicates that the oversupply outlook has eased in the short term and the one-year outlook is poised for undersupply.  

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