Continued low demand for jet fuel will account for 80 percent of next year’s 3.1-million-bpd gap in oil demand compared to pre-pandemic levels, the International Energy Agency (IEA) said on Tuesday.
In its closely watched monthly Oil Market Report, the agency revised down its 2021 oil demand outlook by 170,000 bpd compared to last month’s expectations, largely due to another downgrade in estimates of jet fuel demand next year.
Oil demand this year is estimated at 91.2 million bpd, which is 8.8 million bpd below the 2019 level and down by 100,000 bpd from the November report. Next year, global oil demand will rebound and rise by 5.7 million bpd compared to 2020 levels. Yet, this is a smaller rebound than earlier expectations because of continued weakness in the aviation sector, the IEA said. The weak aviation industry prompted the international agency to revise down its oil demand forecast for the first half of 2021 by 300,000 bpd compared to the outlook provided in November.
OPEC also revised down its oil demand projections for this year and next in its Monthly Oil Market Report for December on Monday, expecting 2021 oil demand at 95.89 million bpd, down 410,000 from its projection of 96.3 million bpd from November, and 96.8 million bpd that it made in its October MOMR. Related: Oil Falls After OPEC Slashes Q1 2021 Demand Forecast
Despite the vaccine rollout, both OPEC and the IEA are cautious in their outlooks for demand next year, especially in the first half, considering the still surging COVID-19 cases and continued lockdowns in major economies.
Due to rising cases, London is moving as of Wednesday to Tier-3, the highest level of restrictions in the UK after the nationwide lockdown ended two weeks ago. Germany, the biggest economy in Europe, is moving into a “hard lockdown” on Wednesday with schools and all but essential shops closed through the Christmas and New Year holidays.
The IEA warned today that the holiday season poses the risk of another surge in COVID infections everywhere, while vaccines will take several months to help global oil demand to rebound.
“The understandable euphoria around the start of vaccination programmes partly explains higher prices but it will be several months before we reach a critical mass of vaccinated, economically active people and thus see an impact on oil demand,” the IEA said in its report on Tuesday.
By Tsvetana Paraskova for Oilprice.com
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One promising factor is that global economy is projected to grow in 2021 by 5.4% compared with 3.3% in 2019 led by emerging markets particularly China and India. This will stimulate the Asian crude oil market which is the biggest in the world.
Moreover, a probable end to the trade war between the US and China and a de-escalation of tension between Iran and the United States under a Biden administration could provide an additional impetus to the global economy.
Brent crude price could be expected to hit $60 in the first quarter of 2021 and $70-$80 in the third quarter. This trajectory will give an average price of $65-$70 in 2021 and possibly $100 by 2024.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London