Global liquid fuels
The COVID-19 pandemic continued to affect global oil markets in 2021. Oil consumption and oil production fell sharply in early 2020 in response to the pandemic. During the second half of 2020 (2H20), however, rising economic activity and the easing of pandemic-related restrictions on other activities caused oil consumption to increase. This trend continued into 2021 with rollouts of COVID-19 vaccinations. In much of the world, vaccines contributed to increased personal travel and business activity, resulting in global oil consumption rising by 5.5% in 2021 from 2020. However, global consumption in 2021 remained 3% below 2019 levels.
For more than a year now, oil consumption has outpaced oil production. Production has remained restrained as a result of crude oil production curtailments by OPEC+ members, investment restraint from U.S. oil producers, and other supply disruptions. Oil consumption outpacing oil production has led to persistent withdrawals from global oil inventories and significant increases in oil prices. We estimate that global oil inventories have fallen for six consecutive quarters going back to the third quarter of 2020 (3Q20), declining at an average rate of 2.1 million barrels per day (b/d) in 2H20 and at an average rate of 1.4 million b/d in 2021. Brent crude oil spot prices increased from an average of $43 per barrel (b) in 3Q20 to an average of $79/b in 4Q21.
Uncertainty in global oil markets has increased heading into 2022. The way in which the Omicron variant of COVID-19 will affect economic activity and oil consumption this year is still unknown. In late 2021, some restrictions to mitigate the spread of COVID-19 began to return in many regions, notably Europe, even before the Omicron variant surfaced. These restrictions, in combination with increased measures to combat the Omicron variant, raised the possibility that global oil consumption could decline in the coming months and added downward pressure to oil prices.
We forecast that global oil production will outpace global oil consumption during both 2022 and 2023, resulting in rising global oil inventories. We expect global oil inventories will rise by an average of 0.5 million b/d in 2022 and by 0.6 million b/d in 2023 and that these inventory builds will generally put downward pressure on crude oil prices. Brent prices average $75/b in 2022 and $68/b in 2023 in our forecast. However, oil market balances are subject to significant uncertainties during the forecast period, notably, the way in which the ongoing pandemic affects economic growth, oil demand, and the production decisions of OPEC+ members. These factors, among others, could keep oil prices volatile.
Global petroleum and other liquid fuels consumption. Based on preliminary data and estimates, global consumption of petroleum and other liquid fuels grew by 5.0 million b/d in 2021. This growth followed a decline of 8.4 million b/d in 2020. We forecast global oil consumption will grow by 3.6 million b/d in 2022 and by 1.8 million b/d in 2023, reaching 100.5 million b/d in 2022 and 102.3 million b/d in 2023. If realized, the 2022 global liquid fuels consumption level would surpass the pre-pandemic 2019 level and represent a new record for world liquid fuels consumption.
Slowing growth in global oil demand in our forecast mostly reflects slowing economic growth. Our global economic growth assumptions come from Oxford Economics, which forecasts global GDP will increase by 4.5% in 2022 and by 3.9% in 2023, compared with an increase of 5.8% in 2021. In addition, oil demand in early 2021 was still significantly affected by pandemic-mitigation measures. As business activity and personal mobility increased through much of 2021, air travel remained the most affected segment of liquid fuels demand in 2021. Our forecast assumes air travel will increase throughout 2022 and into 2023, but it will continue to remain below pre-pandemic levels. With air travel and jet fuel consumption below pre-pandemic levels, we expect economic growth will be the main driver of oil consumption growth, as demand increases for fuels such as gasoline, diesel, and hydrocarbon gas liquids (HGLs).
We expect non-OECD countries, where economic growth tends to be more oil-intensive than in OECD countries, to lead the growth in demand for oil in 2022 and 2023. In our forecast, non-OECD oil consumption grows by 2.2 million b/d during 2022 and by 1.4 million b/d in 2023. Oil consumption in OECD countries grows by 1.4 million b/d in 2022 and by 0.3 million b/d in 2023.
Governments in non-OECD countries in the Asia-Pacific and Latin American regions eased mobility and business activity restrictions during 2021 as an increasing share of the population was vaccinated. However, outbreaks of the Omicron variant in some Asia-Pacific countries have led their governments to delay reopening plans or to extend current restrictions. The Middle East and African regions have been relatively slower to ease mobility restrictions than Europe and the United States. Outbreaks of COVID-19 infections and renewed restrictions on mobility and business activity still pose a significant downside risk in these regions.
Strict mobility restrictions imposed by many of the European OECD countries in 1Q21 gradually eased in 2Q21 as a result of increasing vaccination levels. As a result, Europe experienced a significant jump in economic activity, as capacity limits and restrictions on mobility and nonessential business activity were either reduced or eliminated. However, the spread of the Omicron variant led to a sharp increase in new infections in 4Q21. Some governments have responded by renewing some measures that limit mobility and business activity. Overall, we expect relatively milder movement and business activity restrictions than in 2020 because significant portions of the populations in European countries are fully vaccinated and because some of the new government restrictions have targeted unvaccinated segments of the population.
If currently available vaccines provide insufficient protection against future variants, countries may decide to increase mobility and activity restrictions. This strategy would lead to a longer, more drawn-out recovery in global oil consumption. In addition, the pace of economic growth will drive oil consumption in 2022 and 2023. However, if supply chain issues or central bank measures to limit inflation contribute to GDP growth rates that are lower than those from Oxford Economics that are assumed in this forecast, oil consumption will likely also be lower than forecast.
Non‐OPEC production of petroleum and other liquid fuels. We estimate that in 2021, non-OPEC production increased by 0.7 million b/d compared with 2020. Most of this increase came from the three largest non-OPEC producers: the United States, Russia, and Canada. We expect non-OPEC production to increase by 2.8 million b/d in 2022 and by an additional 1.6 million b/d in 2023. The United States and Russia lead production growth among non-OPEC countries in our forecast during both 2022 and 2023. Brazil, Norway, and Canada also contribute significantly to growth in the forecast.
After the United States, Russia is the world’s second-largest producer of liquid fuels. Its liquid fuels production averaged 10.8 million b/d in 2021, 0.3 million b/d more than in 2020. We forecast Russia’s liquid fuels production will continue to grow in 2022 and 2023 but at a slower rate. From December 2020 to December 2021, Russia’s liquid fuels production grew by 0.9 million b/d. However, most of the growth in 2021 occurred during the second half of the year as OPEC+, in which Russia participates, consistently raised its production targets. This growth used up most of Russia’s available spare capacity. We forecast that annual growth in oil production in Russia will average almost 0.8 million b/d during 2022 and 0.3 million b/d in 2023.
Canada’s liquid fuels production increased by 0.3 million b/d in 2021 to reach a record high annual average of 5.6 million b/d. Production growth in Canada followed increased refinery demand for crude oil in the United States, the removal of production curtailments set by Alberta’s provincial government, and the restart of oil sands expansion projects deferred during the COVID-19 pandemic. In our forecast, we assume that no new upstream projects come online in Canada during 2022 or 2023. We expect oil sands output will continue to grow at smaller increments. Canada’s oil sands producers have adjusted the scale and pace of upstream development and investment. These producers have increasingly moved toward smaller incremental expansions or optimizations of existing projects rather than toward larger expansions or greenfield projects. Some growth will also come from removing the bottlenecks from pipeline capacity.
We forecast Canada’s production of petroleum and other liquid fuels will increase by 0.2 million b/d in 2022. Some increase in our forecast of Canada’s 2022 production follows the expansion of the Enbridge Line 3 crude oil pipeline (0.37 million b/d), which became operational in October 2021. The TransMountain pipeline expansion project (0.59 million b/d) is slated to enter service at the end of 2022. Additional Enbridge expansions and optimizations to its existing pipeline system, if completed, will add more than 0.4 million b/d of export capacity over the forecast period. With this new pipeline capacity from Enbridge and other expansions, oil export constraints will be eliminated by the end of 2023. In 2023, we expect Canada’s production of petroleum and other liquid fuels to grow by less than 0.1 million b/d.
Brazil’s production of petroleum and other liquid fuels fell slightly in 2021. This decline reflects pandemic-related supply chain disruptions and difficulties Petrobras experienced last year when it restarted the fields that had undergone heavy maintenance in 4Q20. We expect Brazil’s production to increase by 0.3 million b/d in 2022, reaching 4.0 million b/d for the first time as production facilities return to normal operation. Our forecast assumes six new floating production storage and offloading (FPSO) units will ramp up through 2023 and continue to drive growth, notably at the Sepia, Mero, and Buzios fields. Once they reach full capacity, these FPSOs will each produce between 70,000 b/d and 180,000 b/d. We expect Brazil’s production of petroleum and other liquid fuels to grow by 0.1 million b/d during 2023.
Norway’s production of petroleum and other liquid fuels grew by less than 0.1 million b/d in 2021, and we expect output to grow by 0.1 million b/d in 2022 and by 0.2 million b/d in 2023. Most of the growth in 2022 comes from the ramp-up in production at the Martin Linge field, which came online in July 2021. The Johan Sverdrup field, which was the main driver of growth in 2021, again is the main source of our forecast growth in 2023. Production from Phase 1 of the project averaged over 0.5 million b/d in 2021, almost 0.1 million b/d more than the peak production of 0.44 million b/d originally expected by the project developers. Phase 2 of the project, with an expected peak production of 0.22 million b/d, will start in 4Q22.
Some of the largest production declines in our forecast occur in Mexico. Mexico’s crude oil and other liquid fuels production averaged 1.9 million b/d in 2021, almost unchanged from 2020 and 2019. Last year, the ramp-up of output from the Ixachi, Pokoch, and Hokchi fields stemmed Mexico’s long-term production declines. Production in Mexico of petroleum and other liquids falls slightly in 2022 in our forecast. We expect Mexico’s oil production to fall faster in 2023, with a decline of 0.1 million b/d. These decreases reflect financial constraints at Mexico’s national oil company, PEMEX, and continued large declines in mature fields. New growth in foreign-operated fields in 2021 and beyond will not offset declines from PEMEX’s older fields, in particular the Maloob field.
We forecast that output across a number of other non-OPEC producers will decline in 2022 and 2023, notably in Indonesia and Colombia.
OPEC production of petroleum and other liquid fuels. At the January 2022 OPEC+ meeting, participants reaffirmed their decision to continue to increase production by 0.4 million b/d monthly, with future adjustments possible depending on market conditions. Our forecast assumes that OPEC member countries will not fully increase production in accordance with their targets in 2022. Some countries will be unable to meet their new targets because of wide-ranging challenges to bring idled capacity back online, and other countries will limit increases to avoid large global imbalances between oil production and oil demand.
OPEC crude oil production averaged 26.3 million b/d in 2021, up 0.7 million b/d from 2020. We forecast that average OPEC crude oil production will increase by an additional 2.5 million b/d to average 28.8 million b/d in 2022 and then average 28.9 million b/d in 2023. Our OPEC crude oil production forecast is subject to considerable uncertainty, driven both by country compliance with existing production targets and uncertain future global demand growth.
OPEC+ has instituted monthly meetings to assess global oil market conditions, and the group’s production targets are subject to regular adjustments. OPEC+ has indicated that it will adjust production targets in response to changes in global oil demand, but the path of global oil demand in the coming months remains uncertain.
Even with increased OPEC crude oil production, remaining surplus production capacity will be more than sufficient to meet additional demand even if consumption exceeds our expectations. We expect that OPEC surplus crude oil production capacity will decline from 6.0 million b/d in 2021 to average 3.9 million b/d in both 2022 and 2023, compared with an average surplus capacity of 2.2 million b/d from 2010–19. These estimates do not include additional capacity in Iran that is offline because of U.S. sanctions.
Among the OPEC countries, Iran, Libya, and Venezuela are not subject to production targets in the OPEC+ agreement. The STEO forecast assumes current U.S. sanctions remain in place for Iran and Venezuela for the entire forecast period. We also expect that OPEC+ will not implement further production cuts to accommodate any potential increases in oil output from Iran or Venezuela.
After five years of declines, Venezuela’s crude oil production rose from 0.5 million b/d in 2020 to almost 0.6 million b/d in 2021, driven by increased service company activity and increased access to condensate and other diluents for blending with Venezuela’s heavy crude oil. Despite increases in 2021, we expect Venezuela’s crude oil production to decline as a result of ongoing operational difficulties, lack of field and facility maintenance, and continuing sanctions.
Libya’s crude oil production rose by 0.8 million b/d to an average of almost 1.2 million b/d in 2021 compared with 2020 after the eastern and western security forces signed a ceasefire agreement in October 2020. The newly formed unified government provided stability among the various factions in Libya in March 2021. Our forecast assumes generally stable production in Libya in 2022 and 2023. However, our forecast of Libya’s crude oil production is subject to heightened uncertainty as a result of the tentative political and security situation in Libya and the lack of a budget to support oil and natural gas infrastructure maintenance and repair. Presidential and parliamentary elections set for December 2021 were delayed. Additionally, a blockade at four oil fields disrupted 0.3 million b/d of crude oil production in Libya in late December.
OPEC non-crude oil liquids. OPEC production of non-crude oil liquids increased from 5.1 million b/d on average in 2020 to 5.3 million b/d in 2021. The 2021 production level reflects increases in production of associated liquids as a result of relaxed OPEC production cuts. We expect production of non-crude oil liquids will increase further in 2022 to 5.5 million b/d and stay at that level in 2023.
Global oil inventories. We estimate that global oil inventories decreased by an average of 1.4 million b/d in 2021, after increasing by 2.1 million b/d in 2020. In our forecast, global oil inventories increase by 0.5 million b/d in 2022 and by 0.6 million b/d in 2023. This inventory growth in largely reflects growth in global oil production paired with slowing growth in oil consumption. Global oil supply increases in the forecast, in part, because of easing production cuts from OPEC+ producers and the effects of higher 2021 oil prices on U.S. tight oil production.
Total oil inventories in the OECD fell from 3.0 billion barrels at the end of 2020 to 2.7 billion barrels at the end of 2021. We expect oil inventories in the OECD to rise to 2.8 billion barrels at the end of 2022 and to 2.9 billion barrels at the end of 2021.
Crude oil prices. Oil prices rose during much of 2021, with Brent crude oil spot prices averaging $71/b for the year compared with $42/b in 2020. Rising prices reflected growth in global oil demand that outpaced near-term growth in oil production, resulting in falling global oil inventories. During 2021, Brent prices reached their highest monthly average of $84/b during October. Brent prices fell to an average of $74/b in December, which largely reflected concerns about how the Omicron variant and potential mitigation efforts may affect near-term oil demand. In addition, increases in crude oil supply from OPEC+ members have likely also contributed to lower oil prices. However, crude oil prices ended December at $77/b as concerns that Omicron would lead to significant declines in oil consumption eased and as some crude oil production went offline in Libya.
We expect Brent crude oil spot prices will average $75/b in 2022. Forecast prices remain near current levels in 1Q22, averaging $79/b for the quarter. Oil markets are generally balanced in 1Q22 in our forecast. After 1Q22, we expect inventory builds through the end of 2022, averaging 0.7 million b/d from 2Q22 through 4Q22. We expect some downward oil price pressures during this period, with Brent crude oil prices falling to an average of $71/b by 4Q22. Although inventories build in our forecast, inventory levels are currently lower than in 2019, which may dampen some of the downward price pressures associated with rising inventories. Forecast inventory builds accelerate in 2023, and we expect that Brent crude oil prices will average $68/b for the year.
Global economic developments and numerous uncertainties surrounding the pandemic in the coming months could push oil prices higher or lower than our current price forecast. Our current price path reflects global oil consumption that increases by 4% from 2021 in 2022 and by an additional 2% in 2023. However, this forecast depends on how any potential new COVID-19 variants develop and how oil consumption behavior changes as the pandemic evolves. Global supply chain disruptions have also likely exacerbated inflationary price effects across all sectors in recent months. How central banks respond to inflation may affect economic growth and oil demand during the forecast period. The duration of, and compliance with, the latest OPEC+ production targets also remains uncertain. Our forecast includes the assumption that OPEC+ will limit production increase to less than the current target of 0.4 million b/d per month. However, this assumption leaves more spare OPEC crude oil production capacity than seen during much of the 2010–19 period. If OPEC countries choose to produce from this capacity rather than hold it as spare, prices would likely be lower than our forecast. In addition, the degree to which the U.S. shale industry responds to the recent relatively high oil prices will affect the oil price path in the coming quarters.
We forecast West Texas Intermediate (WTI) crude oil prices will average about $3/b less than Brent prices in the first half of 2022 before widening to a discount of $4/b less than Brent prices through 2023. This price discount is based on our assumption that the recent discount of WTI to Brent, which averaged less than $3/b in 2021, reflected low global demand for oil exports and relatively low levels of U.S. crude oil production. As global refinery demand for crude oil and U.S. crude oil supply increases, we expect the WTI discount to return to $4/b by 2H22. This discount reflects the relative cost of exporting crude oil from the distribution hub in Cushing, Oklahoma, to Asia, compared with the cost of exporting Brent crude oil from the North Sea to Asia.
