Oil demand will struggle through 2021 even with a vaccine; The IEA cuts its forecast

  • The International Energy Agency cut its oil demand growth forecast by 400,000 barrels per day to show a decline of 8.8 million barrels per day this year.
  • “It is far too early to know how and when vaccines will allow a return to normal life. For the moment, our forecasts do not anticipate a significant impact in the first half of 2021”, specifies the agency.
  • The IEA predicts a recovery in oil demand next year of 5.8 million barrels per day, but that’s only 300,000 barrels per day more than its forecast a month ago, even with the Promising results from drugmaker Pfizer’s COVID-19 vaccine trials.
  • Soaring COVID-19 cases in the United States and Europe will dampen global demand growth, while major consumption hubs such as China and India are seeing improved energy consumption.
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Global oil demand will fall more sharply than expected and a vaccine is unlikely to significantly boost consumption until well into next year, the International Energy Agency said Thursday.

US drugmaker Pfizer said on Monday that trials of its COVID-19 vaccine had shown promising results. That sparked a surge in global financial markets, particularly the price of oil, which gained 11% this week to trade around its highest level since August.

But the IEA, which advises Western governments on energy policy, said the development meant little for near-term expectations for crude oil demand. This is especially true given the surge in COVID-19 cases in the United States and Europe, where a number of major economies have reinstated full or partial national lockdowns.

“As we publish this report, there is considerable excitement at the news that an effective vaccine against COVID-19 may soon be available,” the IEA said in its statement. monthly oil market report.

“However, it is far too early to know how and when vaccines will allow normal life to resume. At this time, our forecasts do not foresee a significant impact in the first half of 2021,” he said.

The Paris-based IEA slashed its forecast for demand growth from 400,000 barrels per day to a drop of 8.8 million barrels per day this year, from its forecast in the month’s market report. last.

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Consumption will recover faster than the IEA thought a month ago, but only at a modest pace. The IEA expects oil demand to increase by 5.8 million barrels per day in 2021, compared to a projected increase of 5.5 million barrels per day in its report last month.

The agency said: “Weak historical data and the resurgence of Covid-19 in Europe and the United States have caused us to revise down our near-term global demand outlook by 400,000 barrels per day in 3Q20. , 1.2 million barrels per day in 4Q20 and 700,000 barrels per day in 1Q21.”

Crude oil futures were down around 1% on the day, with Brent crude trading around $43.42 a barrel, while WTI crude futures traded around 41, $11 a barrel.

The massive reductions in demand come mainly from the wealthier countries of the Organization for Economic Co-operation and Development. Demand from emerging markets will drive the overall recovery in global consumption, the IEA said, driven mainly by improvement in China and India.

He said: “In 2020, global oil demand will be 91.3 million barrels, which is 8.8 million barrels per day lower than in 2019 and below the average level of 2013. In 2021, the demand will recover by 5.8 million barrels per day to 97.1 million barrels per day, or about 3 million barrels per day below the pre-Covid level in 2019.”

Other official forecasters were equally pessimistic. The Organization of the Petroleum Exporting Countries said in its monthly market report on Wednesday that it expects oil demand to fall to its lowest since 2013 this year.

Even though the demand outlook for anything related to road transportation fuels such as gasoline and diesel, or jet fuel and heating oil is precarious, the supply of oil is growing. The IEA estimates that global production could increase by 1 million barrels a day in November alone, as US supply recovers from a series of hurricanes and production in Libya increases.

Production by producers outside the coalition of the Organization of the Petroleum Exporting Countries and their partners – OPEC+ – will fall by 1.3 million barrels per day in 2020. It will increase by 200,000 barrels per day next year. US supply will fall by 600,000 barrels per day this year and 655,000 barrels per day in 2021, the IEA said.

“In the short term, poor demand prospects and rising production in some countries; for example Libya (production increased to 1 million barrels per day from just 100,000 barrels per day in August), Iraq and the United States (recovering from hurricanes), suggest that current fundamentals are too weak to offer firm price support.Physical crude prices remain below futures prices and this is a signal that markets are well supplied,” the IEA said.

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Felix J. Dixon