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IEA boosts 2020 oil demand forecast by 500,000 barrels a day
Kay Cashman Petroleum News
As Petroleum News went to press Thursday morning, June 18, the most recent daily estimate from the Alaska Department of Revenue put Alaska North Slope crude at $41.91 per barrel at market close the day before, just above Brent crude, which had closed at $40.71.
By early Thursday morning Brent had crept up 18 cents, possibly on news that the Paris-based International Energy Agency had raised its 2020 oil demand forecast by 500,000 barrels per day to 91.7 million barrels.
While the oil market “remains fragile,” IEA said in its monthly report, “the recent modest recovery in price suggests that the first half of 2020 is ending on a more optimistic note.” New data show that “demand destruction in the early part of the year was slightly less than expected, although still unprecedented. On the supply side, record output cuts from OPEC+ and steep declines from other non-OPEC producers saw global oil production fall by a massive 12 mb/d in May.”
IEA said that in addition to a “9.4 mb/d decline in OPEC+ supply last month, output from non-OPEC countries outside the deal has fallen by 4.5 mb/d since the start of the year. To further speed up the market rebalancing, OPEC+ decided on June 6 to extend their historic output cut of close to 10 mb/d through July.”
Increased mobility indicators for demand in the March-May period provided support: “in particular, China’s strong exit from lockdown measures has seen demand in April almost back to year-ago levels,” IEA said. “We have also seen a strong rebound in India in May, although demand is still well below year-ago levels.”
In the second half of the year the “easing of lockdown measures in many countries should provide a boost. Even so, demand in 2020 is expected to be 8.1 mb/d lower than in 2019, with the biggest declines seen in the first half of the year,” IEA predicted.
2021 demand still below norm The agency’s forecast for 2021 shows demand growing by 5.7 mb/d, which, at 97.4 mb/d, will be 2.4 mb/d below the 2019 level, IEA said.
This 2.4 mb/d gap between 2021 and 2019 is “largely explained by the dire situation of the aviation sector,” IEA noted in its report.
“Data from the International Air Transport Association show that passenger traffic in 2020 will be nearly 55% lower than in 2019. The industry will continue to be a drag on oil demand through 2021, with our first estimate showing that, having fallen by 3 mb/d in 2020, jet/kerosene demand will rebound by only 1 mb/d in 2021, leaving it below the pre-crisis level,” IEA predicted.
Global oil supply is set to tumble by a massive 7.2 mb/d on average in 2020, and stage only a 1.8 mb/d increase in 2021 assuming 100% compliance with OPEC+ cuts, IEA said. The recent improvement in oil prices that saw West Texas Intermediate oil, almost always below Brent and ANS crude, trading for a few days close to $40 a barrel is not enough to allow a significant increase in U.S. output, which in June is estimated to have fallen to 10.5 mb/d, down by 2.4 mb/d from a record high seen in November, IEA said.
In the meantime, high crude and product stocks will limit the scope for producers in many countries to sell more to refiners, the agency predicted. In the case of the U.S., it said, data from the Energy Information Administration show that commercial stocks of crude oil and products have increased by about 1 mb/d since the start of the year and are at an all-time high.
“In sporting terms, the 2020 oil market is now close to the half time mark. So far, initiatives in the form of the OPEC+ agreement and the meeting of G20 energy ministers have made a major contribution to restoring stability to the market. If recent trends in production are maintained and demand does recover, the market will be on a more stable footing by the end of the second half” of 2020.
“However, we should not underestimate the enormous uncertainties,” IEA cautioned.
Deutsche Bank chimes in To keep us from getting too optimistic, a new report from Deutsche Bank analysts says there is at least a 33% chance that at least one of four disasters will occur in the next decade: an influenza pandemic killing more than 2 million people; a globally catastrophic volcanic eruption; a major solar flare; or a global war, with war being the most likely. If the timeframe is two decades, then there is a 56% chance of one of these disasters occurring, the analysts say. (Earthquakes were omitted because they are local events.)
- KAY CASHMAN
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