Crude oil prices have recovered from their COVID-19 slump, driven by firming demand and continued production restraint by OPEC and its partners (OPEC+). As demand gradually returns to pre-pandemic levels and OPEC+ raises production, crude oil prices are expected to average $56/bbl in 2021 and $60/bbl in 2022. Risks to the outlook include a more prolonged pandemic, a breakdown of the OPEC+ agreement, and the response of U.S. shale.
OPEC+ production cuts continue to support prices
The recovery in prices has been largely due to continued production restraint by OPEC+. While the group has increased production since the start of 2021, this has been more than offset by Saudi Arabia voluntarily cutting an extra 1 million barrels per day from February 2021.
Crude oil consumption gradually recovering
Global inventories returning to normal
Oil price forecast depends on pandemic containment
Oil demand growth estimates have been revised upward recently, reflecting the improved economic outlook and policy support measures. But the expected recovery in demand depends on the pandemic being successfully contained. Renewed outbreaks and lockdowns could extend the weakness in oil demand and lead to lower oil prices.
U.S. oil production could surprise in either direction
The U.S. rig count has risen alongside oil prices and is now more than double its August low. While a further increase in the rig count will be needed before production starts to rise, the U.S. shale industry has repeatedly proved more innovative and resilient to price collapses than expected.
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