A year after the pandemic and a price war sparked one of the weakest months in history for oil prices, the global energy market is well on its way to recovery, the International Energy Agency said Wednesday. In its monthly report, the IEA raised its annual forecast for global oil demand in 2021 by 230,000 barrels a day to an increase of 5.7 million barrels a day. Earlier in the week, the Organization of the Petroleum Exporting Countries increased its 2021 demand forecast by 100,000 barrels a day.

While the Paris-based organization’s forecast recovery will still leave demand 3% short of 2019 levels, investors will likely take the agency’s increased demand forecast for the final quarter of 2021 as a sign that consumption is on its way to recovering. Oil prices rose early Wednesday, extending mild gains so far this week. Brent crude, the global benchmark, was up 1% at $64.32 a barrel. West Texas Intermediate futures, the U.S. gauge, climbed 1.2% to $60.87 a barrel.

A weaker U.S. dollar, upbeat inventory figures from the American Petroleum Institute and speed bumps in nuclear negotiations between the U.S. and Iran were all buoying crude prices, said Warren Patterson, head of commodities strategy at ING.

Last month, the IEA sent oil prices lower with a report that pointed to the world’s still-glutted oil stocks and dismissed the idea of a so-called supercycle characterized by a jump in demand and weak supply. But in its April release, the agency said that “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.”

Oil prices shot higher in the months between October and March, but that rally has faltered in recent weeks amid fresh restrictions and a stalling recovery in parts of Europe. With OPEC and its allies set to increase their collective output by more than 2 million barrels a day over the coming months, “prices could yet come under renewed pressure in the coming months with world oil supply set to ramp up and shift the market from deficit towards balance,” the IEA said.

The agency was less worried about rising output from non-cartel countries, though, trimming its non-OPEC supply-growth forecast by 90,000 barrels a day to 610,000 barrels a day this year. U.S. supply is set to decline by 100,000 barrels a day this year after falling by 600,000 barrels a day in 2020.

Posted in: IEA