The International Energy Agency cut its crude oil demand recovery outlook for this year by 300,000 bpd to 5.5 million bpd in its latest Oil Market Report, out today.
The authority said it expected demand to average 96.6 million bpd in 2021, after crashing by an all-time high of 8.8 million bpd in 2020 under the weight of the Covid-19 pandemic.
On the supply side, the IEA forecast a recovery of over 1 million bpd, most of it to come from OPEC members after last year supply fell by 6.6 million bpd. It also sounded a positive note, leaving space for further improvement in supply during the second half of the year, with the rate of improvement reaching 1.2 million bpd.
The IEA attributed its expectations for demand and supply growth to the rollout of Covid-19 vaccines across much of the world. However, the agency noted demand rebound will be slow because of the renewed or extended lockdowns in some countries, which are weighing on fuel demand.
The authority credited OPEC+ with speeding up a drawdown in global oil stockpiles, noting that if the cartel achieved a compliance rate of 100 percent with its self-imposed production caps, the drawdown could reach 100 million barrels over the first quarter of the year alone.
If demand rebounds as strongly as the IEA expects during the second half of the year, it could even tip the market into a deficit if OPEC+ continues to restrain production.
The report noted, however, that “OPEC+ has taken a more flexible approach to market management and will meet monthly to decide on output levels.”
Earlier this month, the IEA’s Head of Division for Energy Supply Outlooks and Investment, Tim Gould, warned that the oil industry was facing major challenges from the continuing pandemic, which created massive uncertainty.
Oil producers, Gould told Reuters, now have to factor in many more variables in their plans, including economic forecasts and various speeds at which vaccines are being used in different countries.
By Irina Slav for Oilprice.com
ADVERTISEMENT
More Top Reads From Oilprice.com:
- The Miraculous Material Transforming Energy Storage
- U.S. Shale Is Gaining Influence Over Oil Markets
- Three Energy Tech Trends To Watch This Year
The prospects for the oil market in 2021 are very optimistic due to the launch of mass vaccination against COVID-19.
Based on an accelerating depletion of global oil inventories by an estimated 100 million barrels in the first quarter of this year, the prospects of an earlier opening of the global economy and a resumption of global travel, global oil demand could return to the pre-crisis levels of 101 million barrels a day (mbd) by mid-2021 with Brent crude oil price hitting $60 a barrel in the first quarter of 2021, rising to probably $70-$80 by the third quarter and averaging $60-$65 in 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London