Oil Market Report - November 2021

• Global oil demand is strengthening due to robust gasoline consumption and increasing international travel as more countries re-open their borders. However, new Covid waves in Europe, weaker industrial activity and higher oil prices will temper gains, leaving our forecast for oil demand growth largely unchanged since last month’s Report at 5.5 mb/d for 2021 and 3.4 mb/d in 2022.
• US output is rising amid stronger oil prices. World oil supply is set to rise 1.5 mb/d over November and December, with the US providing 400 kb/d of the gain. Saudi and Russia combined would account for 330 kb/d in line with OPEC+ targets. Total oil supply had already leapt 1.4 mb/d m-o-m in October after the US rebounded from Hurricane Ida.
• Global refining throughput is set to increase by almost 3 mb/d from October through December as seasonal maintenance wraps up. Refinery margins rose in October, driven by exceptionally tight product markets, despite the sharp gains in crude oil prices. Further ahead, refinery throughputs are expected to stabilise and generally hold flat in 1H22 before the seasonal increase in 3Q22.
• OECD total industry stocks plunged by 51 mb in September, with crude oil and middle distillate holdings accounting for most of the declines. In terms of regions, Europe led the draw-down. At 2 762 mb, total OECD industry stocks stood 250 mb below the five-year average and at their lowest level since the start of 2015. Preliminary data for October point to a marginal stock build.
• Oil market drivers have begun to shift and benchmark crude prices are easing as a result. Brent crude futures were trading around $81/bbl, down from a high of more than $86/bbl in October. On physical markets, North Sea Dated prices rose in October by $9.15/bbl m-o-m to $83.54/bbl and WTI at Cushing by $9.79/bbl to $81.96/bbl.

The world oil market remains tight by all measures, but a reprieve from the price rally could be on the horizon. Contrary to hopes expressed in Glasgow at COP26 this is not because demand is declining, but rather due to rising oil supplies. Following another hefty inventory decline in September, benchmark crude oil prices surged by $9/bbl to fresh highs above $86/bbl for Brent and $84/bbl for WTI. However, preliminary data and satellite observations of stock changes in October suggest the tide might be turning.

Global oil production is already rising. In October, oil supplies leapt by 1.4 mb/d to 97.7 mb/d, with the US post-hurricane recovery accounting for half the increase. A further boost of 1.5 mb/d is expected over November and December even as OPEC+ disregarded pleas from major consumers to ramp up beyond a monthly allocated 400 kb/d to cool prices. Over this period, the US is now poised to provide the largest increase in supply of any individual country. We have raised our forecast for the US by 300 kb/d for 4Q21 and by 200 kb/d on average in 2022 as current prices provide a strong incentive to boost activity even as operators stick to capital discipline pledges. The US is set to account for 60% of 2022 non-OPEC+ supply gains, now forecast at 1.9 mb/d. Even so, the US will not return to pre-Covid rates until the end of 2022.

That increase will go some way to meet rising demand, still recovering from the 2020 Covid slump. Refinery activity is picking up after autumn maintenance, while end-user demand is on track to strengthen further as more countries open up to international travel, mobility levels increase and vaccination campaigns gather pace. Nevertheless, new Northern Hemisphere Covid outbreaks, slightly weaker industrial activity and higher oil prices will temper gains, leaving our forecast for oil demand growth largely unchanged from last month’s Report at 5.5 mb/d for 2021 and 3.4 mb/d in 2022.