The International Energy Agency (IEA) has lowered forecasts for global oil demand as renewed lockdowns to contain the Covid-19 pandemic temper the recovery expected this year.
In its latest oil market report, 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, Bloomberg reported.
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.
The agency, in a monthly report, said: “The global vaccine rollout is putting fundamentals on a stronger trajectory for the year, with both supply and demand shifting back into growth.
“But it will take more time for oil demand to recover fully as renewed lockdowns in a number of countries weigh on fuel sales.”
Oil prices have rallied this year as Saudi Arabia announced additional production cuts to be made over the next two months. Brent futures traded above $55 a barrel in London yesterday, 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.
For 2021 as a whole, the Paris-based IEA trimmed its demand forecast by 300,000 barrels a day. Global fuel consumption will increase by 5.5 million barrels a day this year, following an unprecedented collapse of 8.8 million a day in 2020.
The fragile outlook prompted the Organisation of Petroleum Exporting Countries (OPEC) 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 one 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.
But it is expected that as the implementation of the vaccines increases, the pool of the virus-immune population, business activity will resume creating demand for refined petroleum products.