The International Energy Agency lowered forecasts for global oil demand as renewed lockdowns to contain the pandemic temper the recovery expected this year. “The global vaccine roll-out is putting fundamentals on a stronger trajectory for the year, with both supply and demand shifting back into growth,” the agency said in a monthly report. “But it will take more time for oil demand to recover fully as renewed lockdowns in a number of countries weigh on fuel sales.”
The IEA cut its consumption estimate for this quarter by 600,000 barrels a day, projecting a slight decline from the end of last year. Still, the world’s swollen oil inventories stand to abate by 100 million barrels in the three-month period as Saudi Arabia and other OPEC+ nations curb supplies.
Oil prices have rallied this year as the kingdom announced additional production cuts to be made over the next two months. Brent futures traded above $55 a barrel in London on Tuesday, close to their highest in almost a year.
The gains have slowed though as a flare-up in virus cases prompts the return of lockdowns in many countries, including China, which has driven the recovery in fuel demand up until now.
The fragile outlook prompted the Organization of Petroleum Exporting Countries and its partners at a meeting earlier this month to delay plans to restore halted output. Saudi Arabia, which effectively leads the group, bolstered the strategy by promising to cut an additional 1 million barrels a day in February and March.
As the year progresses and the demand recovery gathers pace, the OPEC+ alliance should have the opportunity to open the taps a little, according to the IEA.
“Much more oil is likely to be required, given our forecast for a substantial improvement in demand in the second half of the year,” it said.
With global inventories on track for steeper declines in the second half, OPEC+ can proceed with plans to revive about 1.5 million of the 7.2 million currently offline, the agency said.
U.S. shale explorers — who normally jump on price gains to ramp up drilling — have signaled a more cautious approach this time, giving Riyadh and its allies an opportunity to fill the gap.
“If they stick to those plans, OPEC+ may start to reclaim the market share it has steadily lost to the U.S. and others since 2016,” the agency said.