The pandemic-induced crude oil glut that has plagued 2020 is expected to subside by the end of the next year, as markets face a gradual, yet fragile recovery amid a surge in infections and renewed lockdowns.
The International Energy Agency (IEA) has recently downgraded its forecast for global fuel consumption following the latest wave of lockdowns in response to the skyrocketing number of coronavirus infections around the world. The IEA noted that the crude oil market has entered yet another fragile state, with the tentative recovery in Europe showing signs of reversal. Fuel consumption in the region has declined in the third quarter, suggesting that the recent measures imposed to contain the virus outbreak are having a toll on the recovery timeline.
Despite the demand glut though, the IEA anticipates that the bloated crude oil inventories will likely dissipate within the next 12 months, with oil prices beginning to reflect the shift towards optimism. In fact, WTI oil prices have reached a nine-month high, inching closer to the $50 per barrel threshold. IEA expects that global tanks will hold an additional 625 million barrels of crude at the beginning of 2021 compared to pre-pandemic levels, but the oversupply will subside by December 2021.
The IEA also lowered its forecast for global demand growth in the next year by 110,000 barrels per day as a result of continued downward pressure on the demand for kerosine and jet fuel. In the meantime, consumption is anticipated to reach an average of 96.9 million barrels per day in 2021, with the purchase of diesel and gasoline returning to approximately 99% of pre-pandemic levels.
Information for this briefing was found via the IEA. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.