IEA cuts 2021 oil demand outlook on Covid surge

The IEA has lowered its forecast for global oil demand in 2021, but it still expects a sharp rebound in consumption in the second half of the year and the continuation of global inventory draws.

"For now, a resurgence in Covid-19 cases is slowing the rebound, but a widespread vaccination effort and an acceleration in economic activity is expected to spur stronger growth in the second half of the year," the Paris-based energy watchdog said in its latest Oil Market Report (OMR).

The IEA now sees global oil demand growing by 5.45mn b/d this year, after an "unprecedented" fall of 8.85mn b/d in 2020. This would leave consumption averaging 96.64mn b/d in 2021. In last month's OMR, the IEA estimated a decline of 8.82mn b/d in 2020, followed by growth of 5.69mn b/d this year.

"It will take more time for oil demand to recover fully as renewed lockdowns in a number of countries weigh on fuel sales. This has contributed to us revising down our forecast for global oil demand by 600,000 b/d for the first quarter of 2021 and 300,000 b/d for 2021 as a whole," it said.

The IEA sees global oil supply rising by 1.2mn b/d in 2021, after falling by a record 6.6mn b/d in 2020, with the Opec+ group adding 670,000 b/d this year and other countries 560,000 b/d. "There may be scope for higher growth given our expectations for further improvement in demand in the second half of 2021," it said.

Although global supply is rising this month as a result of higher Opec+ quotas, the group's decision to delay a further easing of cuts along with Saudi Arabia's surprise pledge for an additional 1mn b/d output reduction in February-March should help stocks continue to fall, according to the IEA.

"The group's more proactive production restraint looks set to hasten a drawdown in the global stock surplus that got underway in earnest during the third quarter of 2020," it said.

If Opec+ participants fully comply with the latest agreement, global oil stocks could fall by 1.1mn b/d — or 100mn bl — in the first quarter, and there is the potential for steeper declines during the second half of the year as demand strengthens, according to the IEA.

The IEA noted that higher oil prices could lead to increased US shale oil output. "For now though, [shale] companies seem committed to pledges made to keep production flat and instead use any price gain to pay down debt or to boost investor returns," it said. "If they stick to those plans, Opec+ may start to reclaim the market share it has steadily lost to the US and others since 2016."

By Konstantin Rozhnov