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Global Crude Oil Markets Outlook 2021: Trends and Forecasts

July 2021: A test of Saudi Arabian oil power: The United Arab Emirates challenges the status quo

  • In one way or another, more oil supply is coming to the market—including from the United States and the UAE—as the mid-2021 oil demand super spike begins to diminish and the temporary peak in Saudi Arabian oil market power eases. We assume a face-saving formula that reconciles the UAE’s desire to produce more with Saudi Arabia’s aim of extending the time frame of supply management. We expect this year’s oil supply deficits to turn into supply surpluses in 2022.
  • If the UAE is accommodated, other countries, including Russia and Iraq, will be tempted to seek higher crude oil production quotas. Failure to reach a deal could prompt oil producers to ignore quota limits, signaling a loss of Saudi Arabian and Russian control, at least for a time. The UAE’s production capacity is about 4.0–4.2 MMb/d. In June, it produced 2.7 MMb/d, which means as much as 38% of its production capacity was idle—a higher share than any other OPEC+ country. Saudi Arabia’s share of idle capacity was 28%.

    Figure 1: Unused UAE crude production capacity, the share of total capacity

  • The expected 7 MMb/d spike in world oil demand from first to third quarter 2021 was an essential catalyst of higher oil prices, but the velocity of demand growth will ease considerably later this year. We project world oil demand will only increase 300,000 b/d from third to fourth quarter 2021. This slowdown will place greater importance on oil supply restraint if prices are to continue rising. The 2021 oil demand spike gave Saudi Arabia and OPEC+ greatly enhanced, but temporary, oil market power.
  • Crude oil prices above $60/bbl for WTI will permit US companies to increase crude oil production by 700,000 b/d from fourth quarter 2021 to fourth quarter 2022 and still have a free cash flow margin of 30% or higher. US supply growth will not unilaterally overwhelm the oil market—global demand in 2022 is projected to rise 3 MMb/d from fourth quarter 2021 to fourth quarter 2022—but it underlines that higher oil prices are leading to renewed US growth.
  • We project prices for Dated Brent and WTI to ease after peaking in third quarter 2021. Our crude oil price outlook is largely unchanged from last month’s outlook. Our projection for Dated Brent in second half 2021 is to average $70.75/bbl and for WTI to average $67.90/bbl. For 2022, our Dated Brent and WTI projections are $66/bbl and $63/bbl, respectively.
  • There have been stresses within OPEC and OPEC+ greater than today. The March 2020 oil market share battle, the Iran-Iraq war, the Iraq invasion of Kuwait, and tensions between Saudi Arabia and Iran—going back to 1979—did not break up OPEC or OPEC+ or preclude negotiations. To be sure, OPEC is different today than even 10 years ago, but it has endured. However, OPEC+ is not an organization; it is a cooperation agreement between sovereign nations. An OPEC+ continuing without Russia is hard to imagine.
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Bhushan Bahree

Mr. Bahree is a widely respected authority on global oil markets, with particular reference to OPEC and the Middle East. For more than 35 years he has analyzed decision making and developments in the oil-exporting world, identifying and explaining Middle East and global oil and energy trends. Educated in India, Mr. Bahree achieved worldwide recognition during his 15 years as the Wall Street Journal's international energy correspondent. In posting in Paris, Geneva and London, he also reported on such key global economic matters as monetary policy, trade negotiations and the founding of the World Trade Organization. Mr. Bahree has attended and observed nearly all OPEC negotiations since 1980. He has also helped build IHS Markit scenarios, which help organizations prepare for the future.

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Aaron Brady

Mr. Brady has more than two decades of experience in analysis and forecasting of global and North American oil markets. Mr. Brady has authored numerous IHS Markit reports covering vital topics, such as the role of biofuels, the economics of electric vehicles, peak oil demand in the developed world, along with many regular market briefings and World Oil Watch reports. Previously, Mr. Brady was a consultant in the oil industry, focusing on downstream regulatory issues, including the transition to ethanol in the California gasoline market. Mr. Brady's university degrees include a Bachelor of Arts from Amherst College, United States, and a master's degree from Johns Hopkins University's Paul H. Nitze School for Advanced International Studies (SAIS), Washington, D.C.

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Jim Burkhard

Mr. Burkhard is vice president and head of crude oil market and energy and mobility research. He is responsible for the development and coordination of IHS Markit insights and messages for global and regional oil markets and scenarios. His expertise covers geopolitics, industry dynamics, and global oil demand and supply trends. He has more than 20 years of experience in energy markets. He also leads research into how changes in the automotive ecosystem are impacting the future of the energy and automotive industries. He led the ground-breaking IHS Markit study, Reinventing the Wheel (RTW): The future of cars, oil, chemicals, and electric power. RTW has been cited by numerous press outlets around the world including the Wall Street Journal, the Financial Times, CNBC, Bloomberg, and media outlets in China, Europe, and India.Mr. Burkhard has led the development of each generation of IHS Markit scenarios that bring together the entirety of IHS Markit energy research to form an integrated global outlook for the future of energy. The 2006 scenarios pointed to a major debt-induced global crisis two years before the 2008 recession; and in 2011, identified the roadmap to $50 oil by 2014/15. Also, in early 2020, his team was the first to identify the scale of production cuts that would materialize in the US and OPEC+ members in the second quarter of the year.Mr. Burkhard has testified before the US Congress on energy issues and is frequently sought for comment by global media. He has participated in several US National Petroleum Council (NPC) studies that provide policy recommendations to the US Secretary of Energy on oil and gas issues. Prior to joining Cambridge Energy Research Associates before its acquisition by IHS Markit, Mr. Burkhard was a member of the US Peace Corps in Niger, West Africa, where he directed infrastructure projects to improve water availability and credit facilities. He holds a BA from Hamline University and an MS from the School of Foreign Service at Georgetown University.

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Karim Fawaz

Mr. Fawaz is a Director in the Energy and Natural Resources group at IHS Markit. He leads the Energy Advisory Service, which provides energy research tailored to financial institutions investing in the energy and commodity space. He has extensive expertise analyzing short-term global crude oil and refined product markets, managing IHS Markit's global short-term liquids supply/demand balances, and forecasting short-term trends in global oil fundamentals, prices, differentials, and refining margins. He also specializes in the relationship between physical and paper commodity markets. Mr. Fawaz has also led various consulting engagements across the midstream and downstream value chain, including asset acquisition due diligence projects, global crude and product trade flow modeling, and pricing analyses. Prior to joining IHS Markit in 2013, Mr. Fawaz worked in the Financial Advisory practice at PFC Energy. He holds a Bachelor of Engineering degree from the American University of Beirut and an MA from the Johns Hopkins School of Advanced International Studies

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Paul Tossetti

Mr. Tossetti is Executive Director, IHS Markit. He joined IHS Markit when it acquired Petroleum Finance Company in 2013, where Mr. Tossetti was Senior Director in the PFC Energy Market and Country Strategies Group. Mr. Tossetti has over 30 years of diverse knowledge of international oil and energy markets. He advises clients on international oil supply and demand, pricing and OPEC actions. Mr. Tossetti is a past Senior Consultant in Saudi Aramco's Corporate Planning Department where he was a key member of a small group responsible for advising Saudi Aramco's Executive Management on the monthly formula pricing of Arabian crude grades to its refining customers around the world. Previously, he spent over 25 years with Atlantic Richfield in a variety of roles including director, international natural gas marketing, and director of international energy analysis. In both roles, his focus was not only the broad area of energy supply, demand, and price, but also taking the analysis a step further to identify and assess potential energy investments. He holds BA and MA degrees from the University of California, Los Angeles.

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Stanislav Yazynin

Mr. Yazynin is a coauthor of the Global Crude Oil Markets Short-Term Outlook—a monthly report that anticipates short-term global oil market developments based on the analysis of oil demand and supply, macroeconomics, geopolitics, and the impact of financial markets. He develops the annual Global Oil Supply Cost Curve report, which brings together the analysis of the crude oil production outlook and the latest understanding of upstream investment and cost trends. He also develops IHS Markit commentaries on weekly inventories report by the US Energy Information Administration, and on monthly oil market reports by the International Energy Agency.Before joining Crude Oil Markets team in 2018, he was a part of the Russian and Caspian energy team at IHS Markit, analyzing energy sectors of the former Soviet Union countries. Mr. Yazynin joined IHS Markit following its acquisition of PFC Energy in 2013, where he was an analyst and consultant with Russian and Caspian Service under the Markets & Country Strategies practice. Prior to this, he held positions in sales and marketing with Samsung Electronics and Electrolux Group in Russia. Mr. Yazynin holds a Master of Science in petroleum systems engineering from the Gubkin Russian State University of Oil and Gas, and an MBA from Georgetown University.

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