A resurgence of Covid-19 cases and fresh lockdowns are weighing on oil consumption and slowing a rebound in demand, the International Energy Agency said Tuesday.
Source: Market Watch, by Will Horner
In its monthly oil market report, the IEA cuts its forecasts for demand in 2021 by 280,000 barrels a day to 5.5 million barrels a day. The bleaker outlook focused mainly on the start of the year, with a 600,000-barrel-a-day cut to its forecasts for the first-quarter, and a 300,000-barrel-a-day cut to its forecasts for the second quarter.
While global efforts to roll out vaccines for the coronavirus are underway, and are expected to bring an end to the movement restrictions that battered oil demand in 2020, spiraling infection rates have sparked a return to lockdowns in some countries, delaying the expected rebound in demand, the IEA said.
“Border closures, social distancing measures and shutdowns, among other policies, will continue to constrain fuel demand until vaccines are more widely distributed, most likely only by the second half of the year,” the IEA said.
“Frigid temperatures recorded in Asia and Europe over January will only partially offset the impact of the stricter policies,” the Paris-based agency said.
Demand had been recovering steadily in 2020, but the rebound slowed considerably in November and went into reverse in December, the IEA said, as more transmissible strains of the virus were detected and an uptick in cases coincided with cold weather in the northern hemisphere.
The IEA also deepened its forecasts for the contraction in global oil demand in the fourth quarter of 2020 by 200,000 barrels a day, meaning the quarter saw a 6.4 million-barrel-a-day drop in demand.
That came as oil supply remained steady, the agency said. Global supply was 92.8 million barrels a day in December, a modest increase on the previous month.
Oil prices rose slightly Tuesday, with Brent futures, the global oil benchmark, up 1% at $55.27 a barrel. West Texas Intermediate, the U.S. benchmark, rose 0.3% to $52.56 a barrel. Oil prices have been steadily rising from their historic lows in April during the worst of the pandemic.
The IEA’s comments echo those made by the Organization of the Petroleum Exporting Countries last week in its own report. The cartel said that coronavirus lockdown measures and rising infection rates mean appetite for oil would remain subdued in the first quarter of the year.
The Saudi-led cartel and its allies, known collectively as OPEC+, agreed earlier this month to keep their total production flat. Saudi Arabia also said it would unilaterally cut 1 million barrels a day of its oil output, signaling the kingdom’s unease over the resurgence of Covid-19 cases. The Saudi cuts are set to begin next month.