July 13, 2020 [Bunkerspot] – While the global oil market is beginning to show some signs of recovery since ‘Black April’, the International Energy Agency (IEA) is tempering any early optimism with a caution that the escalating number of COVID-19 cases in some countries is ‘a disturbing reminder that the pandemic is not under control’ and the risk to the agency’s market outlook ‘is almost certainly to the downside’.
In its new monthly Oil Market Report, the IEA notes that global oil supply fell by 2.4 million barrels per day (b/d) in June, reaching a nine-year low of 86.9 million b/d.
If OPEC+ cuts stay in place as agreed, then the IEA estimates that global supply could fall by 7.1 million b/d this year before seeing a ‘modest recovery’ of 1.7 million b/d in 2021.
While global oil demand fell by 16.4 mb/d year-on-year in 2Q20, demand picked up strongly in China and India in May, increasing by 0.7 million b/d and 1.1 million b/d month-on-month, respectively.
While world oil demand is projected to decline by 7.9 million b/d in 2020 and bounce back by 5.3 million b/d in 2021, the IEA says that the recent increase in Covid-19 cases and the introduction of partial lockdowns ‘introduces more uncertainty to the forecast’.
According to the IEA, any improvement in demand for refiners ‘is likely to be offset by expectations of much tighter feedstock markets ahead, while refining margins ‘will also be challenged by a major product stocks overhang from the very weak 2Q20’.
‘Global refinery runs are forecast to fall by 6.4 million b/d in 2020 to 75.1 million b/d and increase by 4.7 million b/d in 2021.
The agency also notes that the flatter contango witnessed recently should encourage stock draws. Signs of this were June as floating storage fell by 34.9 million barrels to 176.4 million barrelsl from the all-time high in May.
While the second half of 2020 began with the prospect that the worst was over for oil markets, the IEA say that a surge in coronavirus cases n some parts of the world and the reintroduction of lockdowns ‘is casting a shadow over the outlook’.
However, it notes that in the past few weeks benchmark crude oil futures prices have been ‘remarkably stable’ with both Brent and WTI hovering around $40 a barrel and ‘futures markets are anticipating a transformation in the oil market from substantial surplus in the first half of the year to a deficit in the second half’.
In the second half of 2020, the IEA is expecting an improvement in the level of oil demand decline to 5.1 million b/d. It estimates that global oil demand this year will average 92.1 million b/d, down by 7.9 million b/d versus 2019, which is a slightly smaller decline than forecast in its last OMR.
For 2021, the agency has made some minor adjustments to its outlook and ‘demand will be 97.4 million b/d; but due to the improved outlook for 2020 the recovery next year is lower at 5.3 million b/d.
‘Average demand in 2021 will be 2.6 million b/d below the 2019 level with jet/kerosene accounting for three-quarters of the deficit.’
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