IEA cuts 2021 oil demand outlook

The International Energy Agency (IEA) on Tuesday lowered forecasts for global oil demand as renewed lockdowns to contain the pandemic temper the recovery expected in 2021.

“The global vaccine rollout is putting fundamentals on a stronger trajectory for the year, with both supply and demand shifting back into growth,” the agency said in a monthly report. “But it will take more time for oil demand to recover fully as renewed lockdowns in a number of countries weigh on fuel sales.”

The IEA cut its consumption estimate for this quarter by 600,000 barrels a day, projecting a slight decline from the end of 2020. The world’s swollen oil inventories stand to abate by 100-million barrels in the three-month period as Saudi Arabia and other oil cartel Opec+ nations curb supplies.

Oil prices have rallied in 2021 as the kingdom announced additional production cuts to be made over the next two months. Brent futures traded above $55 a barrel in London on Tuesday, close to their highest in almost a year.

The gains have slowed though as a flare-up in virus cases prompts the return of lockdowns in many countries, including China, which has driven the recovery in fuel demand up until now.

For the whole of 2021, the Paris-based IEA trimmed its demand forecast by 300,000 barrels a day. Global fuel consumption will increase by 5.5-million barrels a day this year, following an unprecedented collapse of 8.8-million a day in 2020.

The fragile outlook prompted the Opec and its partners at a meeting earlier in January to delay plans to restore halted output. Saudi Arabia, which effectively leads the group, bolstered the strategy by promising to cut an additional 1-million barrels a day in February and March.

Substantial improvement

As the year progresses and the demand recovery gathers pace, the Opec+ alliance should have the opportunity to open the taps a little, according to the IEA.

“Much more oil is likely to be required, given our forecast for a substantial improvement in demand in the second half of the year,” it said.

With global inventories on track for steeper declines in the second half, Opec+ can proceed with plans to revive about 1.5-million of the 7.2-million now offline, the agency said.

US shale explorers — who normally jump on price gains to ramp up drilling — have signalled a more cautious approach this time, giving Riyadh and its allies an opportunity to fill the gap.

“If they stick to those plans, Opec+ may start to reclaim the market share it has steadily lost to the US and others since 2016,” the agency said.

Bloomberg