Oil demand is heading for a record rebound in 2021

The coronavirus pandemic will hit global growth and oil demand this year, but producer supply cuts and a record rebound in demand next year will help rebalance the oil market, the International Oil Agency said. ‘energy.

In its monthly oil market report on Tuesday, the IEA said that while global demand for crude will fall by 8.1 million barrels per day this year – slightly less than forecast in last month’s report – demand for 2021 will rebound from a record 5.7 million barrels. one day.

The emergence in recent weeks of parts of the global economy from coronavirus lockdowns that have caused unprecedented damage to global economic growth has spurred a recovery in demand for crude. China’s oil demand in April was almost back to levels seen a year earlier and Indian demand climbed in May.

If this resurgence persists and oil-producing countries stick to their plans to restrict global oil supply, “the market will be on a more stable footing by the end of the second half of the year.” [of 2020]“, said the IEA in its report.

While the decision by the Organization of the Petroleum Exporting Countries and its allies to extend their historic production cuts until July will help accelerate the rebalancing of the oil market, “we must not underestimate the enormous uncertainties” facing the market is still facing, the agency said.

Brent crude rose 3.1% to $40.96 a barrel on Tuesday and first-month U.S. crude oil futures added 3.4% to $38.38 a barrel, rallying to stocks in hope for a rapid economic recovery. Both Brent and U.S. crude are up more than 25% in the past month, though both gauges remain significantly lower this year.

The agency adjusted its June report to take into account forecasts by its parent organization, the Organization for Economic Co-operation and Development, of a 6% global impact on gross domestic product in 2020 and a rebound in 5.2% in 2021. The pace and success with different nations reopening their economies is still highly uncertain, the agency added.

With the worst effects of the lockdown now behind many major economies, the IEA cited data from the French Economic Observatory which shows a 27% drop in global value-added transport – which accounts for half of global demand oil – during quarantine. The manufacturing industry, which accounts for nearly a quarter of global energy demand, has been hit by 30%, according to the OECD.

As better-than-expected demand during the lockdown prompted the IEA to cut its annual demand forecast by 500,000 barrels per day from last month’s estimate, the nascent recovery underway for oil and petroleum products has been uneven and likely will remain so, the agency says.

By suppressing the demand for jet fuel, global oil demand is expected to reach pre-crisis levels by mid-2021, IEA Executive Director Fatih Birol said on Tuesday. “The key issue is when people will start flying,” he said, adding that “if there is a solution to the coronavirus problem and the economy bounces back as expected, we may well see short term oil demand return to pre-crisis levels.

Still, total oil demand may not fully recover to pre-coronavirus levels until 2023, the agency said.

A drop in air travel means that after a fall of 3 million barrels in 2020, the IEA expects demand for jet fuel and kerosene – both used in aviation – to recover by just 1 million barrels per day in 2021, leaving it well below pre-crisis levels.

That lopsided rally and huge inventory glut has caused refiners headaches, with margins “freefalling” in May and throughputs set to fall by 5.4 million barrels per day in 2020, according to the IEA. . Still, the agency expects the sector to recoup most of that drop next year.

Refiners aren’t the only sector of the energy market with a huge glut of supply to burn. The IEA said OECD oil inventories rose by 4.9 million barrels a day in April to 3.1 billion barrels, an amount that will only add to the “incredible” 90 days of term demand coverage that the agency cited in its report last month.

Additionally, U.S. inventories remained at record highs in early June, after rising by a million barrels per day so far this year.

The coronavirus pandemic has locked down factories and shuttered businesses around the world, causing a historic drop in demand for oil just as production hit new highs. The WSJ explains falling oil prices that could reshape energy markets. Photo illustration: Carlos Waters/WSJ (originally published April 16, 2020)

Yet the amount of oil stored at considerable cost on offshore tankers – a last resort during April’s oil price rout – began to decline in May, although it remained at a few million barrels above. his records. Data collected by the IEA shows that global oil storage construction which accelerated in the first months of the year is expected to reverse in June.

The ‘OPEC plus’ cuts – the cartel cut 9.4 million barrels of supply between April and May – and forecasts that US production will fall by 900,000 barrels per day this year and 300,000 barrels per day next year will contribute to that drawdown, the IEA said. .

Write to David Hodari at David.Hodari@dowjones.com

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