IEA sees higher oil demand, no impending supply crunch

The IEA today increased its 2021 oil demand projection, and said nearly 2mn b/d of extra supply beyond the recently-announced Opec+ group increases may be needed in the second half of the year.

But it said that the amount of spare production capacity means there is enough supply to meet this, and it cautioned that the demand recovery remains fragile given the high numbers of Covid-19 cases in some major oil consuming countries and regions including Europe, India and Brazil.

In it latest Oil Market Report (OMR), published today, the Paris-based energy watchdog revised up its 2021 consumption growth forecast by 230,000 b/d compared with its March projections, citing better economic forecasts and "robust prompt indicators".

"The massive overhang in global oil inventories that built up during last year's Covid-19 demand shock is being worked off, vaccine campaigns are gathering pace and the global economy appears to be on a better footing," the IEA said. It now sees demand rising by 5.7mn b/d this year to 96.7mn b/d, following an 8.7mn b/d drop in 2020.

Opec, in its Monthly Oil Market Report (MOMR) published yesterday, put global oil demand at 96.46mn b/d this year, up by 190,000 b/d from its previous report and 5.95mn b/d higher than last year. It also said the recovery would be weighted to the second half of this year.

The IEA today estimated world oil supply at 92.9mn b/d in March, up by 1.7mn b/d from February as US output returned from interruptions caused by extreme cold weather. It said further gains from the US, Brazil and from biofuels production will lift global supply this month, although producers taking part in Opec+ cuts will continue to limit their output.

The agency expects non-Opec+ oil supply to increase by 610,000 b/d in 2021. US supply will fall by 100,000 b/d, it said. In last month's report the IEA anticipated non-Opec+ supply to grow by 700,000 b/d this year and for US oil supply to drop by 180,000 b/d.

"[Oil] prices could yet come under renewed pressure in the coming months with world oil supply set to ramp up and shift the market from deficit towards balance," it said.

"The market changes dramatically in the latter half of this year as nearly 2mn b/d of extra supply may be required to meet expected demand growth — even after factoring in the announced ramp-up of Opec+ production," the IEA said. "Yet, the market does not face an impending supply crunch. By July, Opec+ will still have close to 6mn b/d of effective spare production capacity, excluding some 1.5mn b/d of Iranian crude now shut in by sanctions.

"The bloc's monthly calibration of supply may give it the flexibility to meet incremental demand by ramping up swiftly or adjusting output lower should the demand recovery fail to keep pace," it said.

By Konstantin Rozhnov