SHAKY RECOVERY
Global oil markets remain fragile amid weaker estimates for demand in 2021, the IEA says.
Global oil markets remain “fragile” amid weaker estimates for demand and a recovery in supplies, the International Energy Agency says.
The IEA cut forecasts for world oil consumption in 2021 by 200,000 barrels a day as the pandemic continues to limit travel and economic activity. It boosted projections for supplies outside of OPEC by 400,000 barrels a day as a price recovery spurs investment.
“Renewed lockdowns, stringent mobility restrictions and a rather slow vaccine rollout in Europe have delayed the anticipated rebound,” the Paris-based agency, which advises major economies, said on Thursday in a monthly report.
Still, the market’s prospects look stronger in the second half of the year. Swollen oil inventories will decline sharply as fuel use picks up, and as OPEC and its allies keep a lid on supplies.
“The outlook for the economy and for oil demand in 2021 is looking brighter despite the near-term weakness,” Toril Bosoni, head of the IEA’s oil markets and industry division, said in an interview with Bloomberg television.
The price of Brent crude, the global benchmark, has climbed to a one-year high above $60 a barrel in London as the rollout of vaccines spurs hope for a resumption of normal life, and as OPEC and its allies keep vast amounts of production idle.
After eight days of increases that saw futures rise by 12 percent, Brent edged lower last week capping the longest run of gains in two years. WTI, the U.S. guidepost, also has risen sharply in February, from about $52 to over $58 last week.
Disappearing inventories
The 23-nation alliance of producers led by Saudi Arabia and Russia promised last week to speed up the elimination of excess inventories that amassed during the pandemic. The bloc is keeping about 7 million barrels of daily output offline, or about 7 percent of global supplies.
“Demand is running ahead of supply, and oil inventories are falling very, very sharply,” Bosoni said.
As the decline in stockpiles gathers pace after the summer, it “sets the stage for OPEC+ to start unwinding cuts even if producers outside the group ramp up faster than currently projected,” the report said.
Over the course of this year, about 60 percent of the demand lost during the pandemic should be recovered, according to the agency. World consumption will increase this year by 5.4 million barrels a day to an average of 96.4 million a day.
But the pandemic’s effects still aren’t over, the IEA said. Demand will decline by 1 million barrels during the first three months of the year, and the agency now forecasts that stockpiles will continue to increase during the second quarter. It predicted last month that inventories would remain mostly steady.
Canada on a roll
U.S. shale oil producers, particularly those in the Permian Basin, will be able to take advantage of higher crude prices to increase spending, the IEA said. In Canada, producers have revived all of the production withheld in 2020 and are pumping at record levels.
The additional output will result in supplies outside the Organization of the Petroleum Exporting Countries increasing by about 830,000 barrels a day this year, after the collapse of 1.3 million barrels seen in 2020, according to the report.
OPEC’s own outlook for the oil market, released a few hours after the IEA’s, shifted in a different direction.
The cartel boosted estimates for the average volume of crude it will need to pump this year by 340,000 barrels a day because of what it believes will be stronger demand and signs that rivals are faltering. OPEC projects it would need to supply 27.5 million barrels a day to fully satisfy demand in 2021, or about 2 million more than it’s currently producing.