International Crude Oil Market Analysis & Forecast (2021)

Today, NUS Consulting Group released its annual International Crude Oil Market Analysis & Pricing Forecast report.

In this report, NUS provides a detailed analysis of international crude oil markets, including an assessment of OPEC+ group policies, discussion of the COVID-19 vaccine rollout, the pandemic's long-term impact on global demand, the state of US shale production, and the consequence of government stimulus programs linked to sustainability.

The following are excerpts from NUS Consulting Group’s International Crude Oil Market Analysis & Pricing Forecast report.

It is a truism that the international crude oil markets are highly volatile. While fundamentals primarily drive the market, it is also susceptible to other non-fundamental factors including, government sustainability policies, central bank monetary policy, and geopolitics. The interplay of these influences makes the task of analyzing and forecasting the market a unique challenge.

Overall, OPEC+ has reacted forcefully to the pandemic and stabilized a market knocked grossly out of balance by an exogenous shock that choked demand. However, the pandemic's length is taking its toll on the group, and cracks are starting to appear.

In 2021, the broader US energy industry will most likely undergo significant changes. On 20 January 2021, the Trump Administration will be replaced by the Biden Administration. The Trump Administration went to great lengths to limit climate change and sustainability from US government policies. President Trump withdrew the US from the Paris Climate Agreement and struck scores of domestic environmental protection regulations. The Biden Administration has made climate change and sustainability a centerpiece of its economic policies. It is worth noting President-Elect Biden has not adopted the Green New Deal, a bold and far-reaching plan laid out by the progressive wing of the Democratic party to address climate change. The dramatic shift in government policy between administrations will undoubtedly impact the US shale industry over the coming years.

As discussed in the Market Supply section of this report, the world presently suffers from excess production capacity and crude inventories. Market demand is in a completely different situation. Over the past several years, crude oil demand expanded, but at an increasingly sluggish pace. Our view is that this was largely due to below-trend economic growth experienced by developed economies after the great financial crisis and accelerating sustainability initiatives driven by improving technology.

Like so many other things, Covid-19 has upended this orthodoxy. The lockdowns caused by the pandemic changed many fundamental assumptions concerning how the global economy will look in a post-pandemic world. 

We believe the real focus in 2021 will be on global demand. In short, should the global economy rebound robustly in 2021 (the current consensus), demand growth will mop up any residual excess supply or supply growth. On the other hand, if global economic growth is disappointing (flat or trend growth), supply availability will effectively place a ceiling on crude prices for the year.

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Richard Soultanian