Global liquid fuels

Global liquid fuels supply and consumption patterns experienced two distinct periods in 2020 as a result of the COVID-19 global pandemic and its associated economic effects. From the beginning of 2020 through the end of May, declines in oil consumption outpaced declines in oil production and resulted in global oil inventories rising by 1.2 billion barrels. The sharp rise in inventories contributed to the monthly average Brent crude oil spot price falling to $18 per barrel (b) in April, the lowest price in real terms since February 1999. However, during much of the second half of the year, rising oil consumption, reduced crude oil production from members of the Organization of the Petroleum Exporting Countries (OPEC) and its partners (OPEC+), and lower U.S. crude oil production caused inventories to fall, pushing Brent prices to a monthly average of $50/b in December.

EIA forecasts that global oil consumption and production will rise during 2021 and 2022, and global oil inventories will continue to decline during much of that period. EIA expects that Brent prices will average $53/b over the next two years.

Global Petroleum and Other Liquid Fuels Consumption. Preliminary data and estimates indicate that global liquid fuels consumption declined by 9.0 million barrels per day (b/d) in 2020, the largest annual decline in EIA data going back to 1980. EIA forecasts that consumption will rise by 5.6 million b/d in 2021 and by 3.3 million b/d in 2022. The expected rise in the consumption of liquid fuels results from rising global gross domestic product (GDP) as well as a move toward pre-pandemic patterns of travel, particularly in late 2021 and in 2022. Based on data and forecasts from Oxford Economics, EIA assumes global GDP declined by 3.9% in 2020 and that it will grow by 5.4% in 2021 and by 4.3% in 2022. Despite EIA’s forecast of growing consumption in 2021, global consumption of petroleum and other liquid fuels does not return to 2019 levels in the forecast until early 2022.

EIA’s forecast assumes that business activity and travel will generally continue to increase throughout the year. EIA estimates that global liquid fuels consumption fell to 80.6 million b/d in April 2020, when responses to the COVID-19 pandemic were most severe across much of the world. EIA estimates that global oil consumption recovered to 95.5 million b/d by December, which was up from April but was still 6.8 million b/d lower than in December 2019. Rising COVID-19 infections during the fourth quarter of 2020 slowed the recovery in oil consumption. EIA estimates that fourth-quarter 2020 global liquid fuels consumption averaged 95.4 million b/d, up only 0.6 million b/d from the September level.

EIA expects the recent rise in COVID-19 infections, the re-imposition of some restrictions, and ongoing changes to consumer behaviors because of the pandemic will continue to affect global oil demand in the first half of 2021. Despite uncertainty, economic activity in the forecast returns to pre-pandemic levels in 2021 partly because of vaccine rollouts. As a result, the pace of oil consumption growth will, to a significant extent, rely on the manufacture and distribution of effective vaccines on a global scale.

The recovery in petroleum demand will also differ by petroleum product. Among petroleum products, jet fuel consumption fell particularly sharply in 2020, and EIA assumes that global jet fuel consumption will remain below its 2019 level through the end of 2022. EIA expects jet fuel consumption to return to pre-pandemic levels more quickly in China and the United States than in most other regions. EIA’s forecast assumes consumption of hydrocarbon gas liquids (HGL) will be greater than 2020 levels in 2021 and 2022. EIA expects petrochemical manufacturing activity will contribute to growth in HGL consumption in the forecast. This growth is primarily associated with light-feed petrochemical cracking capacity coming online in China and forecast growth in U.S. HGL consumption.

On a percentage basis, EIA expects oil consumption growth to be fairly even between the countries in the Organization for Economic Cooperation and Development (OECD) and non-OECD countries. EIA forecasts oil demand will grow faster in 2021 as the economy and oil consumption are less affected by travel and other responses to COVID-19 than it was in 2020. Forecast oil demand continues to grow, but at a more moderate pace in 2022, as the effects of 2020’s restrictions and behavioral changes fade and as oil demand is increasingly driven by economic growth. Forecast non-OECD liquid fuels consumption grows by 3.1 million b/d in 2021 (6%) and by 1.6 million b/d (3%) in 2022. China and India lead non-OECD liquid fuels consumption growth. EIA forecasts consumption in China will grow by 0.9 million b/d (6%) in 2021 and by 0.4 million b/d (3%) in 2022, and consumption in India is forecast to grow by 0.5 million b/d (12%) in 2021 and by 0.2 million b/d (4%) in 2022.

Forecast consumption of petroleum and other liquid fuels in the OECD grows by 2.5 million b/d (6%) in 2021 and by 1.7 million b/d (4%) in 2022. The United States leads OECD growth in both years, growing by 1.4 million b/d (8%) in 2021 and by 1.0 (5%) million b/d in 2022. EIA forecasts OECD Europe’s consumption of petroleum and liquid fuels will grow by 0.6 million b/d (5%) in 2021 and by 0.5 million b/d (4%) in 2022.

Non‐OPEC Production of Petroleum and Other Liquid Fuels. EIA estimates that for 2020 as a whole, non-OPEC production declined by 2.3 million b/d from 2019 levels. More than 90% of this decline came from the three largest non-OPEC producers: the United States, Russia, and Canada. Non-OPEC production was its lowest for the year during the second quarter, but production began rising in the third quarter as global oil demand increased. EIA expects production of non-OPEC petroleum and other liquid fuels to increase by 1.2 million b/d in 2021. In 2022, EIA expects non-OPEC production to rise by 2.3 million b/d, surpassing 2019 production levels. Canada and Brazil lead forecast non-OPEC production growth in 2021 and Russia and the United States will lead growth in 2022.

EIA expects that Canada’s total liquid fuels production fell by 0.2 million b/d in 2020. This decrease is the result of both 2019 government-ordered production cuts in Alberta that continued into 2020 and economics-driven shut-ins because of the effect of low oil prices and falling demand for oil exports. In late October, the Alberta government announced it would stop setting monthly oil production limits. Although the government will extend its regulatory authority to curtail oil production through December 2021, pausing production cuts will allow producers to use available export pipeline capacity. As of the end of 2020, EIA estimates that most shut-in production as a result of responses to COVID-19 has been restored, faster than previously estimated. In 2021, EIA expects Canada’s production to increase by 0.4 million b/d and surpass first quarter of 2020 production, driven by the removal of government-ordered curtailments and expansions of previously deferred oil sands projects. EIA does not expect any new upstream projects to come online in Canada during the forecast period. Any additional crude oil production will come from expansions or debottlenecking of existing projects. Forecast production in Canada grows by 0.1 million b/d in 2022.

Brazil’s production of petroleum and other liquid fuels grew by 0.2 million b/d in 2020, and it is expected to grow by 0.4 million b/d in 2021 and by 0.2 million b/d in 2022. In April 2020, Brazil’s national oil company, Petroleo Brasileiro, S.A. (Petrobras), announced production cuts of 0.2 million b/d in response to the COVID-19 pandemic. However, weeks after this announcement, Petrobras reversed these cuts because demand for crude oil exports remained strong, especially for exports to Asia. Even as other Latin American oil producers saw declines in 2020, oil production continued to grow in Brazil, because of the continued ramping of production at floating, production, storage, and offloading vessels (FPSOs) brought online before 2020 and the record production in particular at the Buzios field. One FPSO, P-70, came online in the second half of 2020, bringing on additional volumes. New FPSO units are expected to ramp up through the forecast period, notably at the Sepia, Mero, and Buzios fields. Each of these FPSOs has a production capacity of 180,000 b/d.

After the United States, Russia is the second-largest producer of liquid fuels among non-OPEC countries. EIA expects production in Russia to grow in 2021 and 2022 after declining sharply in 2020 because the OPEC+ agreement, in which Russia participates, limited crude oil production. Russia experienced the largest liquid fuels production decline in 2020 among OPEC+ producers: a decline of 1.0 million b/d from 2019 production. EIA expects Russia’s liquid fuels production to increase by 0.1 million b/d in 2021 and by 0.9 million b/d in 2022. After the OPEC+ agreement ends in early 2022, EIA expects Russia’s production to return to 11.5 million b/d by April 2022, almost the same level as in the first quarter of 2020.

EIA also expects production growth in Norway during 2021 and 2022. Norway’s Ministry of Petroleum and Energy enacted unilateral production limits on the Norwegian continental shelf from June to December 2020. The limits applied to production at existing fields and delayed the start of new fields and kept growth in total liquids production in 2020 to less than 0.3 million b/d. After production limits expire, EIA forecasts production growth of 0.2 million b/d in 2021 and 0.1 million b/d in 2022 as existing fields increase production and new fields come online, including the much-delayed Martin Linge field. The ramp up in new fields during 2021 will contribute to the year-over-year growth in both 2021 and 2022. The Johan Sverdrup field, which was the main driver of growth in Norway’s production in 2020, will also contribute to growth in 2021, 2022, and beyond. EIA forecasts Phase 1 of the Johan Sverdrup field to return to its pre-COVID-19 peak production of 470,000 b/d in early 2021 and surpass that before the end of 2021. In addition, Phase 2 of the Johan Sverdrup field is scheduled to come online in the fourth quarter of 2022 and add more than 0.2 million b/d production at full capacity.

EIA expects liquid fuels production in Mexico to decline the most among non-OPEC countries in 2021 and 2022. Mexico agreed to 100,000 b/d of oil production cuts under the April OPEC+ agreement. Mexico declined to extend cuts past June, and Mexico temporarily stabilized production in 2020 following previous years of declines as Petroleos Mexicanos’s (PEMEX) targeted several priority fields for development. Mexico’s liquid fuels production averaged 1.9 million b/d in 2020, almost unchanged from 2019. EIA expects oil production in 2021 to fall to 1.8 million b/d, even as PEMEX’s priority fields continue to ramp up production and the Ixachi and the Ichalkil/Pokoch projects come online. This output is insufficient to offset declines from PEMEX’s older fields, in particular the Maloob field. EIA expects Mexico’s oil production to average 1.7 million b/d in 2022, reflecting PEMEX’s financial constraints and continued large declines in mature fields.

OPEC Production of Petroleum and Other Liquid Fuels. The OPEC+ production cuts in April 2020 (extended in June), along with record oil supply disruption levels, reversed the inventory builds that resulted from the historic demand declines during the second quarter of 2020. After global oil inventories built at an estimated rate of 7.5 million b/d during the second quarter of 2020, inventories declined during the second half of 2020. OPEC members’ high degree of compliance to the production cut agreement contributed to the falling inventories. EIA estimates that OPEC’s crude oil production averaged 25.6 million b/d in 2020, down by 3.7 million b/d from 2019 and the lowest annual average for OPEC crude oil production since 2002.

OPEC crude oil production reached a low of 23.6 million b/d in the third quarter of 2020. However, the return of crude oil production in Libya and elsewhere during the fourth quarter of 2020, combined with a relaxation in OPEC’s production cuts as global oil demand increased, contributed to production rising to 24.9 million b/d in the fourth quarter.

On January 5, 2021, OPEC+ announced modest production increases from Russia and Kazakhstan in February and March (totaling 75,000 b/d per month). Saudi Arabia announced that it would voluntarily cut production by an additional 1.0 million b/d during February and March, resulting in lower overall OPEC+ forecast production in the first quarter of 2021 than EIA had previously expected.

The revised OPEC+ agreement still allows for higher production targets in 2021. EIA expects that OPEC will continue to limit production but to a lesser degree as it relaxes its production cuts through 2021 as global oil demand rises. EIA forecasts that OPEC crude oil production will average 27.2 million b/d in 2021, up 1.6 million b/d from 2020. With the OPEC+ agreement scheduled to expire in April 2022, EIA expects further increases in OPEC production in 2022. EIA forecasts OPEC crude oil production will average 28.2 million b/d in 2022, an increase of 1.1 million b/d.

Venezuela, Libya, and Iran are not subject to the OPEC+ agreement. EIA assumes that the current U.S. sanctions remain in place for Iran and Venezuela. Venezuela’s production declines accelerated in 2020 after the United States government imposed new sanctions on Rosneft Trading in mid-February. In addition, the decline in global oil demand following the onset of the COVID-19 pandemic further reduced the demand for Venezuela’s oil. EIA expects continued declines in Venezuela’s crude oil production in the forecast.

Libya’s crude oil production fell during the first five months of 2020 after the January closure of five export terminals in eastern Libya and the pipelines connecting the El Sharara and El Feel oilfields to those terminals. By May 2020, Libya’s crude oil production averaged 80,000 b/d, down from 1.2 million b/d at the end of 2019. Libya’s national oil company (NOC) lifted force majeure on all ports in September and October following a ceasefire agreement between the eastern and western security forces. Crude oil fields reopened and the national oil company quickly boosted oil production to near capacity in November 2020. However, EIA’s Libya production forecast is subject to heightened risk as a result of the political and security situation in Libya, including a lack of agreement for revenue sharing between the eastern and western factions.

EIA estimates that OPEC production of other liquids declined to 5.0 million b/d on average in 2020, down from 5.4 million b/d in 2019. The 2020 production decrease was driven by less associated liquids output stemming from a reduction in crude oil production. EIA expects that this decline will reverse in tandem with OPEC+ production increases.

EIA estimates that OPEC surplus crude oil production capacity, which averaged 2.5 million b/d in 2019, averaged 6.2 million b/d in 2020 (4.0 million b/d more than the 2010–19 average) and peaked during the third quarter of 2020 at 7.9 million b/d. EIA forecasts annual average surplus capacity to decline to 5.1 million b/d in 2021 and 4.1 million b/d in 2022. The fluctuations in surplus capacity are a direct result of crude oil production changes in response to the OPEC+ agreement. These estimates do not include additional capacity that may be available in Iran that is offline because of U.S. sanctions on Iran’s oil sales.

Global Petroleum Inventories. EIA estimates that global oil inventories increased by 1.2 billion barrels from the end of 2019 through May 2020. However, from June through December, estimated inventories fell by 0.5 billion barrels. EIA expects global oil inventories to generally draw in 2021 and 2022, as forecast global oil demand continues to gradually return to pre-pandemic levels, outpacing supply increases. EIA expects global oil supply to rise in the forecast, but voluntary production restraint from OPEC+ producers, along with the lingering effects of low oil prices on U.S. tight oil production, will limit global supply increases. As a result, EIA expects global oil inventories to decline at a rate of 0.6 million b/d in 2021 and 0.5 million b/d in 2022. This rate of inventory withdraw would leave global oil inventories 0.3 billion barrels higher at the end of 2022 than they were at the end of 2019.

Crude Oil Prices. Brent crude oil prices traded within a wide range during 2020. After averaging $64/b in January 2020, Brent prices fell to an average of $18/b in April, the lowest monthly average price in real terms since February 1999. The low prices were the result of significant declines in oil consumption that caused a sharp rise in global oil inventories. However, Brent prices increased through much of the rest of 2020 because rising oil demand and reduced production caused global oil inventories to fall. Brent prices rose to a monthly average of $50/b in December in part because of expectations of future economic recovery based on continued news about the viability of multiple COVID-19 vaccines. Brent prices in early January reached their highest levels in 10 months after Saudi Arabia announced a one-month unilateral cut to its crude oil production for February that is in addition to its OPEC+ commitments.

EIA expects Brent crude oil prices to average $53/b in both 2021 and 2022. Saudi Arabia’s unilateral cut means global oil market balances will be tighter in early 2021 than EIA had previously expected. EIA expects global oil inventories will fall by 2.3 million b/d in the first quarter of 2021, which EIA expects will contribute to Brent prices averaging $56/b.

Despite rising forecast oil prices in early 2021, EIA still expects upward price pressures to be limited through the forecast period because of high global oil inventory levels and surplus crude oil production capacity. EIA expects moderate downward oil price pressures to emerge beginning the second quarter of 2021, when global oil production is forecast to rise and cause inventories to draw at a slower pace. Brent spot prices are forecast to average $51/b during the second half of 2021. Upward price pressures reemerge in the forecast during 2022 as a result of global oil inventory draws accelerating compared with the second half of 2021.

Global economic developments and numerous uncertainties surrounding the ongoing COVID-19 pandemic in the coming months could push oil prices higher or lower than EIA’s current price forecast. This price path reflects global oil consumption increasing by 6% from 2020 levels to reach an average of 97.8 million b/d in 2021 and by an additional 3% in 2022. But this forecast is dependent on the rate at which populations are vaccinated and the way in which oil consumption behavior changes once populations are widely vaccinated. The duration of, and adherence to, the latest targeted OPEC+ production cuts also remains uncertain. Lastly, the degree to which the U.S. shale industry responds to the recent relative strength in oil prices compared with their recent lows in April will affect the oil price path in the coming quarters.

EIA forecasts West Texas Intermediate (WTI) crude oil prices will average about $3/b less than Brent prices in 2021 and $4/b less than Brent prices in 2022. This price discount is based on EIA’s assumption that the current reduced discount of WTI to Brent of $2/b on average in the second half of 2020 reflects significant declines in U.S. crude oil production and reduced available volumes of U.S. crude oil for export to distant markets relative to other global benchmarks. As the global market adjusts to reduced demand and production levels, EIA expects the spread to return to $4/b by the second half of 2022 based on the relative cost of exporting U.S. crude oil from the Cushing distribution hub to Asia, compared with the cost of exporting Brent crude oil from the North Sea to Asia.