PTT Exploration and Production Public Company Limited (PTTEP) stated that after populations across the world continue to receive more COVID-19 vaccines, it is expected that vaccination rate in the United States of America (U.S.) and Europe will reach herd immunity target at 75% within 3Q21 and the rest of the world by mid-2022.
Global oil demand is thereby expected to continue its recovery path from lifting lock-down restriction and rising activities during the summer season. By the end of this year, oil demand is anticipated to recover to 100 million barrels per day which is slightly below pre-COVID-19 level in 2019 at an average 100.8 million barrels per day.
On the supply side, according to OPEC+ meeting during 1-4 July 2021, there was an agreement to boost oil production by 400,000 barrels per day each month from August to December 2021 and extend their supply management agreement through the end of 2022. Meanwhile, U.S. production is forecasted to maintain constant around 11 million barrels per day this year as oil companies maintain their financial discipline, focusing on generating free cash for debt repayment and provide return to their investors.
Based on oil demand and supply outlook, supply deficit is expected in 3Q21 and potentially push oil price up further to 70-80 USD per barrel level with the main reason being that OPEC+ will continue to control their supply level. However, Iran is forecasted to ramp up their production to at least 500,000 barrels per day in 4Q21 if U.S. sanctions are lifted after potentially successful negotiations about the Iran nuclear deal. This could pressure the oil market to be slightly supply surplus and push oil price downward to 60-70 USD per barrel.
The other key factors to be monitored are summarized as follows; COVID-19 situation, lockdown measure, vaccination progress, demand recovery, monetary policy, oil supply levels of main producing countries (OPEC, Russia and the U.S.), as well as U.S. sanction policy on Iran and Venezuela.
As for the LNG market, the oversupply situation in global is expected to prolong throughout 2021, with a total production capacity of existing and upcoming LNG projects growing by 33 MTPA (approximately 9%) from 2020 to 396 MTPA by the end of 2021, while demand for LNG is anticipated to grow to 379 MTPA (Source: FGE as of July 2021). LNG price is expected to be lower at the range of 7-8 USD per MMBTU during the second half of 2021 as the U.S. and Australia production facilities could be returned to normal levels.
The LNG spot price tends to increase during the end of this year when winter is approaching. The 2021 Asian Spot LNG price forecasts range between 8.1 – 10.3 USD per MMBTU (Source: Morgan Stanley, FGE).
PTTEP expected the average sales volume for 3Q21 and for the full year of 2021 to be approximately 405,000 and 412,000 barrels of oil equivalent per day, respectively. The higher sales volume in 2021, compared to the previous year was mainly from additional sales volume from the start-up of Block H Project, including the acquisition of 20% interest in Oman Block 61 Project, which the transaction was completed on March 23, 2021.
For 3Q21 and the full year of 2021, PTTEP expected to be able to maintain unit cost at around 28 -29 USD/BOE, lower from the previous year from effective cost management, coupled with the commercial production start -up of Block H project and the acquisition of 20% interest in Oman Block 61 Project, of which the unit costs for these two projects are quite low.