IEA sees ‘improved’ outlook for oil

But picture remains bleak for industry

The outlook for global oil markets has “improved somewhat,” with demand a little stronger than expected and supply reined in by a brutal price crash, the International Energy Agency said.

World oil production is on track for a “historic decline” this month to the lowest level in nine years, the IEA said in a monthly report. OPEC and its partners are slashing output, while others like the U. S. are forced to scale back drilling.

“It is on the supply side where market forces have demonstrated their power and shown that the pain of lower prices affects all producers,” said the Paris-based agency, which advises major economies.

“We are seeing massive cuts in output from countries outside the OPEC+ agreement and faster than expected.”

It’s a stark shift in tone from last month, dubbed “Black April” by the agency’s chief, when the IEA warned that cutbacks by OPEC+ probably weren’t enough to prevent the world’s storage tanks being overwhelmed by the middle of the year.

The oil market is still in a very difficult position. International crude prices have collapsed by more than 50 per cent since the start of the year as the coronavirus lockdowns ground flights, empty roads and shutter businesses.

Yet the current price of about US$30 a barrel in London is US$ 10 above April’s lows.

“The picture is still very bleak for the industry,” IEA executive director Fatih Birol said on Twitter.

The heaviest demand destruction may be behind us, but huge uncertainties remain.”

The IEA boosted its estimates for global oil demand in the second quarter by 3.2 million barrels a day, to 79.3 million.

Yet consumption remains on track for a loss of almost 20 million barrels a day in the quarter, or roughly 20 per cent, from the same period in 2019 due to the pandemic.

For 2020 as a whole, the demand forecast was pushed up by 700,000 barrels a day, but it still remains on track for an annual plunge of 8.6 million a day, or about 9 per cent.

Oil prices were up on the report’s findings. Brent crude futures rose US$ 1.67, or 5.7 per cent, to US$ 30.86 a barrel at 1654 GMT ( 1254 EDT).

U. S. West Texas Intermediate ( WTI) crude futures rose US$1.60, or 6.3 per cent, to US$26.89 a barrel.

Oil major BP Plc gave an upbeat take on the demand picture on Thursday, saying it has seen consumption “surge back” this week as supplies have dropped. “We’re seeing a major oilprice correction,” chief financial officer Brian Gilvary said during a Financial Times panel discussion.