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Oil and refining market outlook from Wood Mackenzie

Read Time: 2 mins

Wood Mackenzie’s latest outlook report shows that the art of balancing oil markets and the refining sector in 2021 hinges upon three key themes – OPEC+ production, COVID-19 developments, and the energy transition.

Following 2020’s unprecedented oil demand shock amid the COVID-19 pandemic, Wood Mackenzie expects 2021 total liquids demand to average 96.7 million bpd, 6.3 million bpd higher than the 2020 annual level.

Wood Mackenzie vice president Ann-Louise Hittle said: “Our short-term forecast assumes vaccine distribution accelerating through 2021 and is underpinned by 5 percent expected growth in global GDP, according to our macroeconomic outlook, following the global economy’s 5.4 percent contraction last year.

“The pace and strength of the global liquids demand recovery will depend on the pace of COVID-19 vaccine distribution and global economic recovery.”

While there is a glimmer of hope in global crude production this year, the refining sector continues to battle challenges compounded by COVID-19, OPEC+ production cuts and new capacity additions.

Even with demand projected to increase strongly, 2021 refinery utilization will remain low, hence the threat of refinery rationalisation remains. Over 1 million bpd of refining capacity will be completed in the Middle East and Asia this year; it remains to be seen if these new-build sites might prompt further rationalisation in Europe and across Asia.

Vice president Alan Gelder said: “In 2020, there was a surge in product stocks, particularly for middle distillates given the collapse in jet demand. High product stocks will slow the recovery in pricing, but will stocks return to prior levels?

“A rapid recovery in gasoline demand could lead to weak distillate prices as gasoline demand will set refining runs. The relative recovery in demand between products is important to watch. However, any material increase in crude runs will weaken the pricing of high sulfur fuel oil as its current high price reflects limited supply.” For more information visit