IEA lifts oil demand forecast as outlook turns ‘decidedly’ brighter

The International Energy Agency revised higher its oil demand forecast for this year, but warned of “lingering concerns” over the strength of the recovery in consumption.

The Paris-based organisation said in its monthly market report on Wednesday that “fundamentals look decidedly stronger” when compared with April last year when oil prices tumbled to multidecade lows.

“The massive overhang in global oil inventories that built up during last year’s Covid-19 demand shock is being worked off, vaccine campaigns are gathering pace and the global economy appears to be on a better footing,” the intergovernmental agency said.

World oil demand is expected to expand by 5.7m barrels a day in 2021 — an upward revision of 230,000 b/d — with total consumption at 96.7m b/d. Demand declined last year by 8.7m b/d, the IEA said.

Brent crude, the international oil benchmark, rose 1.7 per cent in London trading to $64.73 a barrel.

Still, coronavirus cases are rising in Europe as well as India and Brazil, which tempered the IEA’s optimism about the future.

As global oil producers in the Opec+ alliance increased output in the coming months to meet a growing supply gap, the IEA said, prices could come under “renewed pressure”.

Opec and allies outside of the cartel, including Russia, agreed earlier this month to increase production from May. Producers will collectively increase output by more than 2m b/d in the coming three months, which includes the unwinding of additional voluntary curbs by Saudi Arabia.

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Opec+ agreed in April 2020 to cut a record 9.7m b/d. The group gradually unwound these curbs to about 7m b/d ahead of the April meeting of ministers, with countries meeting each month to decide oil policy. 

The IEA said the group’s April decision “may keep oil markets from overheating in the short term and better supplied when demand starts to accelerate in the second half of 2021”.

It added: “The bloc’s monthly calibration of supply may give it the flexibility to meet incremental demand by ramping up swiftly or adjusting output lower should the demand recovery fail to keep pace.”

Opec’s research arm on Tuesday also revised higher its numbers for global demand in 2021 by 190,000 b/d, with growth at almost 6m b/d this year.

“Reductions in surplus inventories as well as an expected pick-up in product demand will pave the way for a cautious recovery of oil market balance in the summer months,” the cartel said in its monthly report. 

The assessment is more optimistic than its report ahead of the April ministerial meeting when Opec revised lower its demand estimates for the coming months.