IEA cuts oil demand forecast on recovery uncertainty

The IEA has lowered its oil demand projections for the first time in several months, saying that the economic recovery from the Covid-19 pandemic "has plateaued in many regions".

In its latest Oil Market Report (OMR) the IEA forecasts global oil demand to fall by 8.1mn b/d this year to 91.9mn b/d, which is 140,000 b/d lower than it forecast a month ago. It said this reflects "stalling of mobility as the number of Covid-19 cases remains high, and weakness in the aviation sector."

The Paris-based energy watchdog also revised down its 2021 global demand estimate, by 240,000 b/d to 97.1mn b/d, driven by a long road to recovery for the aviation sector. It estimates jet fuel and kerosene demand to fall by 4.8mn b/d — or 39pc — this year compared with 2019, followed by a rise of just below 1mn b/d in 2021.

The IEA now forecasts demand to grow by 5.2mn b/d next year from this year, but it said that global consumption in December 2021 will still be 2pc lower than at the end of 2019.

It sees global oil supply falling by 7.1mn b/d this year and then increasing by 1.6mn b/d in 2021, assuming the Opec+ cuts remain in place as agreed and with full compliance from all participants. It estimates global supply was 90mn b/d last month, up by 2.5mn b/d from a nine-year low in June, with the rise coming as Saudi Arabia ended its voluntary supply cut, the UAE produced in excess of its Opec+ target and as "the US began to reverse steep declines."

"While Opec+ cuts ease by nearly 2mn b/d this month and other producers restore shut-in volume, compensation for earlier Opec+ over-production could keep world supply steady in August," the report said.

"Our balances show that in June demand exceeded supply, and for the rest of the year there is an implied stock draw," the IEA said. It said the amount of crude held in floating storage fell by 35.7mn bl, or 1.15mn b/d, in July from June's all-time high, to 184.4mn bl, although it said much of this moved into onshore storage, sustaining levels in the latter.

"Ongoing uncertainty around demand caused by Covid-19 and the possibility of higher output means that the oil market's re-balancing remains delicate," the IEA said.

By Konstantin Rozhnov