Lagos — Global oil demand is expected to recover by 5.5 million barrels per day in 2021, the International Energy Agency, IEA has said in its Oil Market Report, OMR for January.
According to the Agency, the recovery will go from 5.5mb/d to 96.6 mb/d in 2021, following an unprecedented collapse of 8.8 mb/d the previous year.
It added that resurgence in Covid-19 cases is slowing the rebound, but a widespread vaccination effort and acceleration in economic activity is expected to spur stronger growth in the second half of the year.
“But it will take more time for oil demand to recover fully as renewed lockdowns in a number of countries weigh on fuel sales. This has contributed to us revising down our forecast for global oil demand by 0.6 mb/d for 1Q21 and 0.3 mb/d for 2021 as a whole. World oil demand is now expected to rise by 5.5 mb/d this year, following 2020’s 8.8 mb/d contraction. This recovery mainly reflects the impact of fiscal and monetary support packages as well as the effectiveness of steps to resolve the pandemic.”
Anticipating weaker demand, OPEC+ decided in January to delay a further easing of cuts and Saudi Arabia surprised with an additional 1 mb/d supply reduction in February and March.
“The group’s more proactive production restraint looks set to hasten a drawdown in the global stock surplus that got underway in earnest during 3Q20. Assuming OPEC+ achieves 100% compliance with the latest agreement, global oil stocks could draw by 1.1 mb/d, or 100 mb, in 1Q21, with the potential for much steeper declines during the second half of the year as demand strengthens”.
The report said higher demand will allow supply to start rising this year. World oil supply is now expected to increase by 1.2 mb/d in 2021 following a record decline of 6.6 mb/d last year.
“Much more oil is likely to be required, given our forecast for a substantial improvement in demand in the second half of the year. Our balances assume that during 2H21, OPEC+ will still withhold 5.8 mb/d of oil from the market as per the group’s April 2020 agreement. However, OPEC+ has taken a more flexible approach to market management and will meet monthly to decide on output levels”.
OPEC+ countries are expected to add more to supply than those outside the pact.
“There may be scope for higher growth given our expectations for further improvement in demand in 2H21. After holding flat at 92.8 mb/d in December, global supply is rising this month with OPEC+ due to ramp up during January,” it said.
Global refinery throughput is expected to rebound by 4.5 mb/d in 2021, after a 7.3 mb/d drop in 2020.
“Runs rose by 2.6 mb/d in November, the largest monthly gain in seven years, as refiners returned from peak maintenance. A cold snap in Europe and Asia boosted diesel and kerosene, but higher crude oil prices led fuel oil cracks lower, with an overall negative impact on refinery margins”.
Observed global oil stocks fell by 2.58 mb/d in 4Q20 after preliminary data showed hefty drawdowns towards year-end. In November, Organisation for Economic Co-operation and Development, OECD industry stocks fell for a fourth consecutive month. A monthly decline of 23.6 mb (0.79 mb/d) left inventories at 3 108 mb, 166.7 mb above their five-year average. Products led the fall, with OECD industry crude stocks only 48.9 mb below a May-peak, the report said.
Brent reached $57/bbl on 12 January, a level not seen since February 2020.
“Despite rising Covid cases, crude prices are well supported by financial, economic, and market fundamentals. Crude prices flipped into backwardation in December, and the 12 month time spread deepened to $2.50/bbl by mid-January. Freight rates fell after OPEC+ agreed cuts on 5 January”, it said.