Major energy institutions are adopting a cautionary tone over oil demand in 2021, with the International Energy Agency and OPEC on Feb. 11 joining the US Energy Information Administration in trimming their recovery estimates.
The IEA in its monthly oil market report still pointed to a tightening oil market this year, despite lowering its estimate of the revival in global oil demand this year and seeing improving non-OPEC supply growth. The “fragile rebalancing” will be aided by still reasonable demand growth along with cautious OPEC+ market management and flatlining US output.
The Paris-based agency predicts global oil demand will grow by 5.4 million b/d in 2021 to reach 96.4 million b/d, noting this would be around 60% of the volume lost to the pandemic in 2020. The IEA lowered by 100,000 b/d its oil demand outlook for the current quarter, because of the increasing emergence of new COVID-19 variants.
This is the fourth straight month the IEA has lowered its demand outlook, as it shifted its optimism to the second half of the year given the challenges the world is facing in reining in COVID-19.
“A more positive global economic outlook and the start of large-scale vaccination campaigns in much of the developed world will reinforce stronger oil demand growth in the second half of the year,” the agency said, citing the IMF’s improved outlook for the global economy.
OPEC’s monthly report also on Feb. 11 trimmed its forecast, noting oil demand will rise by 5.8 million b/d this year to 96.1 million b/d.
Both the IEA and OPEC pointed to the second half of the year as providing a silver lining to demand and this could speed up the tightening of the oil market.
“While the global economy is showing signs of a healthy recovery in 2021, oil demand is currently lagging, but is forecast to pick up in the second half of 2021,” OPEC said in the report.
The EIA also pared back its outlook earlier this month, forecasting global consumption growth of 5.4 million b/d in line with the IEA, and overall consumption of 97.7 million b/d.
S&P Global Platts Analytics takes a more sanguine view, predicting global oil demand will grow by 6.1 million b/d after a contraction of 8.8 million b/d in 2020 as it sees an even quicker recovery.
“Balances remain relatively stable with modest stock draws for the next few months, with OPEC+ and Saudi Arabia supply restraint in response to COVID-19-related demand uncertainty,” Platts Analytrics said in a research note. “As demand recovers later in the year, balances look tighter.”
The IEA noted that outside of OPEC, producers are responding to higher oil prices, “albeit cautiously and from a low level,” citing the US shale patch and the Permian Basin, with US drilling and completion rates having increased steadily in recent months.
“At current prices there is clearly potential for some producers to respect those engagements and modestly increase their capital expenditures,” the agency said, even if “operators will stick to financial discipline and reward shareholders in…