Since the release of our Annual International Crude Oil Market Analysis and Forecast Report in January, much has changed. At the start of the year, COVID vaccines were just receiving emergency use authorizations (EUAs) from regulatory agencies, but real questions remained as to the speed and pace of vaccine manufacture and immunization campaigns.
In the first half of 2021, the United States, led by the Biden Administration, implemented one of the more effective COVID vaccination programs. The rapid vaccine deployment resulted in the speedy reopening of the US economy. The reopening of the economy and additional COVID relief package (the American Rescue Plan) resulted in Q1 United States GDP growth of 6.4 percent (on an annualized basis). Forecasts indicate US economic growth most likely accelerated in Q2.
Europe suffered several stumbles before its vaccination program got on track. As a result, the EU economy started the year slowly but has progressively gained momentum with each succeeding month. Overall economic growth in Europe is expected to increase by 4.5 percent in 2021 (on an annualized basis).
Unfortunately, due to the scarcity of available vaccine doses, particularly of the AstraZeneca version which does not require ultra-cold storage, much of the developing world continues to be mired in the pandemic, and the prospects for improvement in the coming months are not encouraging.
The International Monetary Fund (IMF) projects that global growth in 2021 will be 6.0 percent, driven principally by the US, EU, and China. As expected, the global economic rebound is driving demand for crude oil as businesses reopen, employees return to work, and both business and leisure travel accelerate. While demand has broadly recovered to pre-COVID levels, supply has not followed suit. To date, the dramatic cuts made by OPEC+ have largely remained in place, and US crude production has stayed steady at substantially reduced levels.
With demand rebounding and supply continuing to be constrained, global crude inventories (which swelled during the pandemic) have drawn down to pre-pandemic levels and prices have risen sharply. The direction of the markets for the remainder of this year and into the next will depend largely upon global growth rates once we exit the post-pandemic bounce and the pace at which the world's principal crude producers (the US, Saudi Arabia, Russia, Iraq, and Iran) expand crude production.
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