COVID-19 sent shocks through global oil markets, with oil demand and supply still struggling to return to pre-pandemic levels. McKinsey & Company's outlook looks back at 2020 and presents our most-likely scenarios for oil demand, supply, and prices through 2040.

Recap 2020

Demand has partially recovered since April 2020 but still ended the year approximately 9 million barrels per day (MMb/d) below the 2019 level, with continued COVID-19-related lockdown measures in January 2021 keeping it around 6 MMb/d lower than January 2019.

Supply remained robust until April 2020 and then dropped by 13 to 14 MMb/d in May, driven by OPEC+1 cuts and shut-ins (that have mostly returned to the market), thus showing the willingness of OPEC+ to continue interventions. The market saw an oversupply of approximately 20 MMb/d in April 2020, pushing Brent prices to $18 per barrel of oil (bbl) for the month, before recovering to $50/bbl by the end of the year.

OECD commercial inventories remain at high levels and, although we have seen draws over the past months, they are still 150,000 barrels above pre-COVID-19 levels.

Short-term up to 2025

Oil demand is expected to take two to four years to return to 2019 levels, depending on the duration of lockdowns and the pace of GDP recovery. Based on our Global Energy Perspective reference-case demand insights, current OPEC+ intervention will be sufficient to help balance the market in 2021, with prices remaining at a sustained level of $50 to $55/bbl through to 2025.

If GDP growth recovers faster than expected, we may see a near-term price increase at more than $55/bbl. However, if demand recovers slower than expected or if OPEC+ stops cutting output, prices could be depressed or highly volatile for the next three to four years.

Long-term up to 2040

Long-term equilibrium oil prices have decreased by $10 to $15/bbl compared with pre-COVID-19 outlooks, as driven by a flattening cost curve and lower demand. Under an OPEC-control scenario, in which OPEC maintains its market share, we see a $50 to $60/bbl equilibrium price range in the long term, fueling 10 to 11 MMb/d US shale oil and 11 to 13 MMb/d deepwater production from pre-financial-investment-decision (FID) projects.

While most of the offshore-oil-producing regions will be under pressure in an accelerated energy-transition scenario, the sector will still require new production of nearly 23 MMb/d to meet demand after 2030.

Download Global oil supply-and-demand outlook to 2040 for key charts from the report (PDF–651 KB).