Oil Market Predictions for 2021

Strong oil demand growth will lift prices next year.

That’s one of several oil and gas market predictions for 2021 made by Wood Mackenzie analysts, which were released in an opinion piece posted on the company’s website recently.

The price prediction, which was made by Wood Mackenzie’s head of macro oils, Ann-Louise Hittle, outlined that Wood Mackenzie expects coronavirus related shutdowns to start easing in the first quarter of next year and that the company is forecasting a world oil demand increase of 6.6 million barrels per day, year on year, in 2021.

“Already, China has seen oil demand strengthen this quarter to levels higher than the same period of 2019,” Hittle said in a company statement.

“The turnaround in China’s oil demand points to the first sign of what will soon be a reality; brisk global year-on-year demand growth in 2021. That trend is going to tighten the supply and demand balance by the second half of 2021 and support oil prices,” Hittle added.

Wood Mackenzie’s prediction list also included a projection from the company’s head of upstream analysis, Fraser McKay, who noted that the upstream oil and gas sector will spend another year “in the doldrums”, even as prices rise.

“Investment levels in the upstream sector will stay flat at about $300 billion in 2021,” McKay stated.

“Reactions to price signals will be asymmetric; low prices mean rapid cuts, but at higher prices contingency and resilience will outweigh enthusiasm to take advantage of a nadir in service sector costs,” he added.

“Projects will increasingly be judged on their environmental, social and corporate governance credentials. We expect 20 or so big projects to be sanctioned in 2021, up from just over 10 in 2020, but just half the prevailing pre-pandemic trend,” McKay continued.

Tom Ellacott, Wood Mackenzie’s senior vice-president of corporate research, predicted that oil and gas companies’ diversification into low-carbon energy will accelerate, and Valentina Kretzschmar, the company’s vice-president of corporate research, forecasted that more companies will set goals for cutting emissions.

Wood Mackenzie’s vice president of upstream research, Robert Clarke, said there will also be a “blockbuster” deal in U.S. tight oil.

“All the pieces required for mega-consolidation are in place,” Clarke said in a company statement.

“Financially strong companies can exploit their advantageous cost of capital. Smart deals can lower maintenance capital requirements. And mergers that introduce diversification offer much-needed risk-mitigation to tight oil businesses,” he added.

“As a result, we think we will see a blockbuster deal next year that will send shockwaves through tight oil. Absent a very volatile crude market, two big names will get together. Maybe even three, as some of the recent deal filings have indicated,” Clarke continued.

“We don’t think it goes as far as the Permian eventually only having five meaningful operators, as some have suggested. But we are confident a storied name (or three) will be retired in 2021,” the Wood Mackenzie representative went on to state.

To contact the author, email andreas.exarheas@rigzone.com