Oil demand woes deepen

All three of the world’s main oil forecasting agencies — the International Energy Agency (IEA), the US Energy Information Administration (EIA) and the Organization of Petroleum Exporting Countries (OPEC) — published new quarterly forecasts this week and none sees oil demand back at 2019 levels by the end of next year.

Transport fuels are hardest hit during the depth of the pandemic and remaining so as restrictions have been gradually eased.

Commercial flights are languishing 40 per cent below their peak January level, according to data from Flightradar24.

Long-haul flights have been hit particularly hard.

Comparing the latest outlooks with last month’s views, the IEA has become noticeably more bearish on demand, cutting its forecast for every quarter from now to the end of 2021.

It now sees the world using 5 lakh barrels a day less oil in the second half of 2020 than it did a month ago.

For 2021, the IEA cut its demand forecast by 2.4 lakhbarrels a day, the first downward revision since April, when the full impact of the coronavirus on oil demand first became apparent. By December 2021, global oil consumption will still be 2 per cent lower than at the end of 2019.

OPEC made downward revisions to demand for all future, except the first quarter of next year. The producer group remains pessimistic as it sees consumption down year-on-year by over 1 million barrels a day more than the IEA does in the second half of 2020. But it takes a more optimistic view of the first half of 2021, seeing demand down by 2 million barrels a day from the same period in 2019, compared with a drop of 3.6 million barrels a day forecast by the IEA.

The EIA strikes a contrasting note. Not only does it see the impact of the pandemic on oil demand being less severe than either of the other two forecasters, it also sees it being largely over before the end of next year, with global oil demand in the fourth quarter of 2021 down by just 3.5 lakhbarrels a day from the same period two years earlier.

Despite the worsening demand outlook from two of the three agencies, the OPEC+ group should still be able to drain the excess oil inventories built up over the first half of 2020 by the end of next year as long as they all stick to the output promises.

Under the terms of that agreement, 20 countries agreed to cut their combined crude production by 9.7 million barrels a day from agreed baselines from May to July, reducing the size of the cut to 7.7 million barrels a day for the rest of 2020 and then to 5.8 million barrels during 2021 and the first quarter of 2022.

The global stock changes derived from the IEA and OPEC demand and supply forecasts, assuming the full implementation of the OPEC+ output deal for the rest of this year and all of 2021, show global oil inventories falling back to end-2019 levels in the final quarter of next year.

OPEC’s report shows the group’s compliance with its share of the output target at 97 per cent in July. The IEA puts it at 87 per cent and at 89 per cent for all 20 members of the OPEC+ group. They will need to do better than that if they are to work of the inventory overhang by the end of 2021.

Bloomberg