The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the International Energy Agency (IEA) said on Wednesday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.
Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.
However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.
Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.
“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s Covid-19 demand shock have returned to more normal levels,” the IEA said in its report.
In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.
“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.
The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.
“The widening supply and demand gap paves the way for a further easing of OPEC+ supply cuts or even sharper stock draws,” the IEA said.
The agency’s assessment for oil demand is similar to that of OPEC, which expressed optimism in its monthly report on Tuesday that accelerating vaccination programs and rising fuel demand would raise global oil demand by 5.95 million bpd this year despite the COVID crisis in India.
By Tsvetana Paraskova for Oilprice.com
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