OPEC puts oil demand hopes on recovery in second half as India slows second quarter

The logo of the Organization of the Petroleum Exporting Countries (OPEC) at the headquarters.

Omar Marques | LightRocket | Getty Images

OPEC on Tuesday maintained its prediction of a strong recovery in global oil demand in 2021 as growth in China and the United States thwarts India’s coronavirus crisis, a prospect that bolsters the group’s plan to gradually relax production cuts.

In a monthly report, the Organization of the Petroleum Exporting Countries said demand will increase by 5.95 million barrels per day (bpd) this year, or 6.6%. The forecast was unchanged from last month.

The report’s optimism comes even as it warns of “significant uncertainties,” primarily around the pandemic, and as concerns over India weigh on oil prices.

Crude fell after the report was released, but is still up 30% this year to nearly $ 68 a barrel.

“India is currently facing serious challenges related to COVID-19 and will therefore face a negative impact on its recovery in the second quarter, but it is expected to continue improving its momentum in the second half of 2021,” OPEC said. in his monthly. report.

India’s seven-day average of new COVID cases hit an all-time high on Tuesday. The country’s oil refiners – the third-largest consumer – are slashing crude processing rates.

In the report, OPEC lowered its oil demand forecast for the second quarter by 300,000 b / d and increased its estimate for the third quarter by 150,000 b / d and 290,000 b / d for the three last months of 2021.

OPEC now forecasts 2021 global economic growth at 5.5%, down from 5.4% last month, assuming the impact of the pandemic will have been “largely contained” by the start of the second half of the year.

“The recovery leans a lot towards the second half,” OPEC said.

Decrease in non-OPEC supply

OPEC and its allies, known as OPEC +, agreed in April to gradually ease cuts in oil production from May, after the new U.S. administration called on Saudi Arabia to keep it going. affordable energy for consumers.

The report also showed OPEC’s oil production already slightly higher, as Iran, exempt from any voluntary cuts due to US sanctions, pumped more in April, leading to a 30,000 bpd increase in production. of the group at 25.08 million bpd.

OPEC + cut supply to a record 9.7 million bpd last year to support the market as demand slumped. Most of these restrictions remain in place even after the April decision.

In the report, OPEC also increased its estimate of how much oil it must pump this year, citing the impact on US production of the Texas freeze.

Non-OPEC supply is now expected to increase by 700,000 b / d, compared to 930,000 b / d last month. As a result, OPEC has raised its estimate of global demand for its crude to 27.7 million bpd this year, up 200,000 bpd from last month and allowing for higher average OPEC production in 2021.

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Felix J. Dixon