Crude oil demand forecast revised down again, little vaccine impact in H1 2021 – IEA

LONDON (ICIS)–The decline in global crude demand this year is likely to be deeper than previously forecast on weaker demand from OECD countries as surging coronavirus caseloads and fresh lockdown measures blunt oil consumption, the International Energy Agency (IEA) said on Thursday.

The IEA now expects the year on year decline in global crude demand to stand at 8.8m bbl/day in 2020 compared to projections of 8.4m bbl/day last month, due in large part to revised data for the third quarter.

Mild early fourth-quarter weather in Europe and North America is exacerbating reduced oil demand from the travel sector.

The slump is driven nearly exclusively be the developed world, with demand expectations increasing for China and India, but overall 2020 demand is expected to be 91.3m bbl/day compared to 100.1m bbl/day in 2019, and is weaker on average even than levels seen in 2013.

News earlier this week of the effectiveness of Pfizer’s coronavirus vaccine candidate sent markets and crude prices surging on hopes of a defined end to the pandemic, but market fundamentals in the nearer future offer scant support for producers to claw back some of the pricing lost this year.

The weak demand outlook and surging production in the US, as firms restart refining capacity after the hurricane season, along with Iraq and Libya, is keeping the market well supplied.

SUPPLY, DEMAND BALANCE
Pfizer’s vaccine announcement comes ahead of a meeting between OPEC+ countries on 1 December, with depressed pricing and increasing supply likely to provide a difficult backdrop to negotiations over whether to extend production cuts in 2021, the IEA said.

“Our current balances, incorporating the quota increase of 2m bbl/day included in the OPEC+ supply agreement, imply almost zero stock change in the first quarter of 2021,” the IEA said in its monthly oil market report.

“Unless the fundamentals change, the task of re-balancing the market will make slow progress,”

While market ebullience over the vaccine news – 90% efficacy is significantly above expectations and makes an argument for vaccinating whole populations – drove Brent crude pricing over $45/bbl earlier in the week, values have started to subside since then, standing at $43.86/bbl for January futures on Thursday.

The IEA is declining for the time being to let promising vaccine news influence its forecast for the first half of 2021.

Global oil supply rose 200,000 bbl/day month on month to 91.2m bbl/day in October, with OPEC+ production cut compliance remaining strong, although a 1m bbl/day increase could be on the cards for this month as US capacity comes back online and Libya continues to ramp up output.

Refining throughput fell in September as higher activity in parts of the world failed to offset the impact of hurricane-driven shutdowns in the US.

Permanent refining capacity shutdowns now stand at 1.7m bbl/day, but significant structural overcapacity remains, with more than 20m bbl/day of crude distillation capacity remains idle.

Despite weaker expectations for 2020 and a reluctance to adjust metrics based on early vaccine data, the IEA hiked its demand growth expectations for next year.

The Paris-based agency now projects a 5.8m bbl/day increase compared to expectations of 5.5m bbl/day last month, which would still leave demand 3m bbl/day below 2019 levels.

Front page picture: Crude oil tankers at Rotterdam port, the Netherlands, archive image
Source: Yuriko Nakao/AFLO/Shutterstock