IEA upbeat on strong H2 oil demand rebound
The International Energy Agency (IEA) on Wednesday cut its global oil demand growth forecast for 2021 but said its forecast for a strong rebound in energy demand in the second half of the year remains unchanged as expanding vaccination programmes allow the global economic recovery to power ahead.
In a sober reminder that the global recovery from the pandemic remains fragile, the IEA said oil demand dropped last month as the coronavirus surged in India.
“India’s Covid crisis is a reminder that the outlook for oil demand is mired in uncertainty,” the IEA said in its latest Oil Market Report.
Oil consumption growth
The Paris-based energy watchdog now expects full-year global oil consumption growth of 5.4 million bpd, to 96.4 million bpd, lower by 270,000bpd from its previous forecast largely because of downgrades to demand in the first half of the year. It sees demand nearly recovering to pre-pandemic levels by the end of 2021 to reach 99.6 million bpd in the fourth quarter of this year, not far off the 100.6 in the final quarter of 2019.
The energy watchdog said oil demand is already outstripping supply and the shortfall is expected to widen even if Iran boosts exports as vaccinations against Covid-19 bolster the global economy.
“The anticipated supply growth through the rest of this year comes nowhere close to matching our forecast for significantly stronger demand beyond the second quarter,” said the report, citing increased pumping from Opec+ countries.
Output from the Organisation of the Petroleum Exporting Countries and allies including Russia lagged demand by around by 150,000 bpd in the second quarter, IEA said. That shortfall is expected to widen to a 2.5 million bpd by year’s end.
Opec+ producers have been curbing output since 2017 but have eased since imposing record high cuts last year, with more easing agreed from this month.
“The widening supply and demand gap paves the way for a further easing of Opec+ supply cuts or even sharper stock draws,” the IEA said, noting that storage of oil had ebbed to nearly the five-year-average after soaring amid the pandemic.
Iran re-entry into the market
Iran’s possible full reentry into the oil market, if indirect U.S.-Iranian nuclear talks succeed, would still leave production from Opec+ producers at 1.7 million bpd short of demand, it added.
Supply recovery outside Opec+ was recovering more slowly than the IEA expected as the virus delayed projects in Brazil and the Gulf of Mexico and hampered maintenance in Canada.
While new waves of infections in Brazil and Thailand and even India - the world’s third-largest consumer suffering record-breaking cases - were not enough to derail the trend but could continue to affect the market, it added.
The IEA revised demand lower in Europe and OECD Americas by 320,000 bpd and 515,000 bpd respectively in the first quarter, and cut its forecast for demand in India in the second quarter by 630,000 bpd.
The IEA said that based on the current Opec+ agreement, it sees global oil production growing by 3.8mn b/d from April to December.
“For 2021 as a whole, world oil production expands by 1.4 million bpd year-on-year versus a collapse of 6.6mn bpd in 2020,” it said. “Canada leads non-Opec+ with growth of 340,000 bpd while the US is set to contract by a further 160,000 bpd.”
“After nearly a year of robust supply restraint from Opec+, bloated world oil inventories that built up during last year’s Covid-19 demand shock have returned to more normal levels,” the IEA said. “While the market looks oversupplied in May, stock draws are set to resume from June, even with global oil supply on the rise.”
Oil prices climb
Oil prices rose on Wednesday on signs of a speedy economic recovery and upbeat forecasts for energy demand supported by vaccinations against Covid-19 although waves of infections in India and Brazil curbed gains.
Brent crude climbed 83 cents, or 1.2 per cent to $69.38 a barrel at 1116GMT. West Texas Intermediate U.S. crude rose 85 cents, or 1.3 per cent, to $66.13.
“Expectation that the economy and demand will recover rapidly have once again allowed Brent to climb,” said Commerzbank analyst Carsten Fritsch.