In the latest monthly Oil Market Report, the International Energy Agency (IEA) has lowered third-quarter 2020 oil demand estimates by 140,000 b/d overall due to poorer than expected deliveries.
This was offset by slightly higher estimates for the year’s fourth quarter. As a result, IEA’s 2020 forecast is unchanged at 91.7 million b/d, a decline of 8.4 million b/d from 2019. The 2021 forecast is also largely unchanged at 97.2 million b/d, a gain of 5.5 million b/d from 2020.
However, as IEA noted, the outlook remains fragile, as COVID-19 infections increase in many countries and governments tighten restrictions on movements. “This surely raises doubts about the robustness of the anticipated economic recovery and thus the prospects for oil demand growth.”
IEA’s global demand and supply estimates (including an assumption of full compliance with the OPEC+ agreement) imply a significant stock draw of 4 million b/d in the fourth quarter. While this is a large change, it is happening from record high levels. With the 1.9 million b/d increase in the OPEC+ production ceiling currently planned for Jan. 1, there is only limited headroom for the market to absorb extra supply in the next few months. Also, there is a risk that the demand recovery is stalled by the recent increase in COVID-19 cases in many countries.
“The uncertain outlook that could see the drawdown of stocks falter is reflected in the fact that physical prices have weakened, and this has brought down the front of the forward curve for Brent crude oil. The longer term offers little encouragement for the producers; the curve shows prices not reaching $50/bbl until 2023. Truly, those wishing to bring about a tighter oil market are looking at a moving target,” IEA said.
Global oil demand rose 3.4 million b/d month-on-month (m-o-m) in July, as coronavirus restrictions eased and summer holidays in the northern hemisphere supported a rise in transport fuel demand. Based on preliminary data, estimated demand gained a further 1.5 million b/d m-o-m in August.
Data for September remain scarce at the time of writing. Early indications point to higher work mobility in Europe and North America, and a significant demand increase in India following the end of the monsoon season and due to easing coronavirus restrictions.
However, a second wave of COVID-19 cases and new movement restrictions are now slowing demand growth. The recovery in passenger flights has also slowed, as governments have maintained travel restrictions. IEA therefore expects demand to rise by just 350,000 b/d m-o-m in September, the smallest such gain recorded since May, and with one country, India, responsible for the lion’s share of the gain.
For October, a strike in Norway and Hurricane Delta in the US Gulf briefly knocked out substantial volumes, but any losses are likely to be offset by further gains from Libya, should its cease-fire hold, and if OPEC+ members produce at their agreed targets.
In fourth-quarter 2020, world supply may rise towards 92 million b/d from 91.3 million b/d in the third quarter if Libyan output continues to recover and assuming OPEC+ produces to its target. Of the top three producers, the US is expected to decline by 160,000 b/d vs. third-quarter 2020 while Saudi Arabia and Russia add more than 300,000 b/d between them. Total non-OPEC supply is set to drop by 2.6 million b/d in 2020 before recovering by 400,000 b/d in 2021.