The U.S. crude oil benchmark WTI will average $56 per barrel across the first quarter of this year, the Energy Information Administration has estimated in its Short-Term Energy Outlook (STEO) on Thursday.
This is a $6 increase from the December 2020 average of $50 per barrel, mainly due to expectations that the global demand for petroleum liquids will be greater this year—especially in the first quarter.
This reality should lead to inventory draws, although yesterday’s estimated crude oil by the API did not deliver results consistent with this expectation. On Wednesday, the API estimated that U.S. crude oil stocks had gained an additional 2.562 million barrels.
While the EIA expects oil demand to rise in Q1, “the recent rise in COVID-19 cases will continue to limit global oil demand in the first half of 2021.”
Nevertheless, the EIA is expects U.S. GDP by 5.4% in 2021, “leading to energy consumption growth.” Global consumption of liquid fuels in 2021 are expected to average 97.8 million barrels per day this year.
For comparison, global consumption was 101.2 million barrels per day in 2019 before the pandemic began.
WTI spot prices were hovering slightly above $53 per barrel on early Thursday, down after the API’s reported inventory build on Wednesday, and increased lockdowns in China on an increased number of coronavirus cases there.
But the EIA is bullish for oil prices. “EIA expects global inventory draws will contribute to forecast rising crude oil prices in the first quarter of 2021. Despite rising forecast crude oil prices in early 2021, EIA expects upward price pressure will be limited through the forecast period because of high global oil inventory, surplus crude oil production capacity, and stock draws decreasing after the first quarter of 2021.”
By Julianne Geiger for Oilprice.com
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The International Monetary Fund (IMF) expects the US economy to grow at an estimated rate of 3.8% in 2021. This compares with 8% for China, 8.3% for India and 5.2% for the EU.
With global oil demand currently underpinned by fast improving fundamentals, accelerating depletion of global oil inventories projected to shed an estimated 100 million barrels in the first quarter of 2021, global rollout of vaccines with prospects of earlier end of global lockdown and a resumption of full economic activities, investors are indeed becoming increasingly bullish on crude oil with global oil demand expected to return to pre-crisis levels of 101 million barrels a day (mbd) by mid-2021. An added bullish factor is China’s and India’s insatiable thirst for oil.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London