Oil demand will struggle in 2021, air travel remains sluggish (IEA)

  • Global oil demand growth will reach 5.7 million barrels per day next year, according to the International Energy Agency, which cut its forecast for 2021 by 170,000 barrels per day from its estimate. a month ago.
  • Demand for aviation fuels is expected to remain weak next year even with the rollout of a vaccine and this shortfall is the main reason for the overall IEA downgrade.
  • “In 2020, we have witnessed unprecedented and historic turmoil in energy markets,” the IEA said in its monthly oil market report.
  • Visit the Business Insider homepage for more stories.

Global oil demand will recover more slowly than expected next year, even with the deployment of a COVID-19 vaccine after “unprecedented and historic turbulence” in 2020, largely due to damage to consumption of aviation fuel by the pandemic, said the International Energy Agency. Tuesday.

The IEA, which advises Western governments on energy policy, estimates global oil demand growth will reach 5.7 million barrels per day in 2021, down 170,000 barrels per day from its forecast last month. , mainly due to a downward revision to its estimates of jet fuel demand next year. .

“In 2020, we have witnessed unprecedented and historic turbulence in energy markets. The disruption to normal life caused by the pandemic has had a serious impact on the health and well-being of millions of people” , the IEA said in its December oil market report.

Road transport fuel demand is likely to return to around 2019 levels, the IEA said. But low kerosene consumption will account for up to 80% of the consumption shortfall of 3.1 million in 2021 compared to 2019, the IEA said.

“In the near term, oil demand remains weak,” the report said. China is driving much of the improvement in energy consumption in the second half of 2020, but the outlook elsewhere is less promising.

“The picture in OECD countries is bleak: over the same period, demand will be 5.3 million barrels per day lower than it was a year ago. toll,” the agency said.

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The IEA expects oil demand to fall by 8.8 million barrels per day this year, roughly matching its November forecast of a decline of 8.75 million barrels per day. .

Global balance of oil supply and demand

Global balance of oil supply and demand

International Energy Agency

The price of oil, which hit historic lows in the spring when the pandemic halted virtually all global transportation, consumer and factory activity, has since more than doubled in value to around $50 a barrel, in largely due to the deployment of a number of the COVID-19 vaccines.

However, even with a number of effective vaccines to protect the population, energy demand will not come back strong in the near future, especially given the resurgence of the virus in major economies, such as the United States, l Germany, the United Kingdom and Canada.

“The understandable euphoria around the start of vaccination programs partly explains the price hike, but it will take several months before a critical mass of vaccinated and economically active people is reached and thus sees an impact on oil demand” , the agency said. “In the meantime, the end-of-year festive season will soon approach with the risk of a further upsurge in Covid-19 cases and the possibility of even more containment measures,” he added.

On the supply side, the Organization of the Petroleum Exporting Countries and its partners have only agreed to gradual increases in crude production to avoid another prolonged drop in the price of oil.

OPEC+ agreed earlier this month to increase production by just 500,000 barrels per day each month from January, well below market expectations of a 2.2 million barrel per day increase. against the target of 7.7 million barrels per day agreed by the group.

“For 2021 as a whole, non-OPEC non-OPEC+ producers are expected to increase production by 400,000 barrels per day after a drop of 1.3 million barrels per day in 2020,” the agency said.

However, the IEA estimates that demand will not significantly exceed supply and exhaust a global surplus of unused fuel until much later in 2021.

“Our analysis suggests that the global crude market will have an inventory surplus of 625 million barrels at the start of 2021 compared to December 2019. Assuming that Chinese balances are neutral in 2021, the market will absorb the 183 million barrels located elsewhere and in July, it will go into deficit compared to the end of 2019,” the agency said.

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Felix J. Dixon