IEA Reduces Oil Demand Forecast as Vaccine News Unlikely to Revive Crude Markets Soon
Although Pfizer Inc.’s coronavirus vaccine made some significant headway in the past week and pushed crude prices to a 10-week high above US$45, the positive sentiment will likely not have a lasting effect on the revival of markets.
The International Energy Agency (IEA) has updated its quarterly oil demand forecast, calling for a reduction of nearly 1.2 million barrels per day for the fourth quarter. Although news of a progressing vaccine certainly served as a sign of relief for some airline companies which have been struggling amid a travel demand collapse since the onset of the pandemic, the IEA warns that fuel consumption will not increase until at least the second half of 2021.
Data from the third quarter suggests that oil inventories dropped by 800,000 barrels per day, which is less than a third of the anticipated amount. As a result, global oil consumption is on track to decline by 8.8 million barrels per day by the end of the year, which amounts to an average of 91.3 million each day. This forced the IEA to reduce its estimates for 2021, with the first quarter projection being lowered by 700,000 barrels per day; however, demand is still expected to rebound by an average of 5.8 million barrels per day next year.
In the meantime, OPEC members are scheduled to meet in three weeks and discuss the upcoming scheduled supply increase of 2 million barrels per day come January. According to the IEA however, such an increase in oil supply will not help diminish global oil inventories within the first quarter of 2021, and will in fact act as a countermeasure to OPEC’s goals of bringing stockpiles to normal levels. In addition to the problem of diminishing crude demand, OPEC now also has to account for the surprise increase in supply.
Libya has recently boosted its oil production to 1 million barrels per day following a lengthly period of political turmoil. In the meantime, the US has been steadily recovering from recent hurricane disruptions along the Gulf Coast. This will likely push global oil output 1 million barrels per day higher in November, which will likely serve as a burdensome backdrop for the upcoming OPEC meeting.
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.
