Demand would increase by 5.7 MMBbl/d in 2021, after falling 8.1 MMBbl/d in 2020, according to the IEA’s Monthly Oil Report for June. AEGIS advises to be wary of OPEC.
Total oil demand is not expected to recover to pre-virus levels until at least 2023, according to the IEA. Even with a strong rebound of 5.7 MMBbl/d in 2021, the average global oil demand of 97.4 MMBbl/d would still be nearly 2.4 MMBbl/d below 2019 levels.
Global oil demand would average 91.7 MMBbl/d in 2020, a 500 MBbl/d upward revision from the IEA’s previous oil report in May.
IEA expects supply will fall below demand in June, so globe inventories should start to shrink. Demand is recovering and global production has been trimmed across the globe. Global oil supply is set to drop by 7.2 MMBbl/d on average in 2020, and then increase by 1.8 MMBbl/d in 2021, assuming 100% compliance with OPEC+ cuts.
The IEA stated, “In sporting terms, the 2020 oil market is now close to the half time mark. So far, initiatives in the form of the OPEC+ agreement and the meeting of G20 energy ministers have made a major contribution to restoring stability to the market. If recent trends in production are maintained and demand does recover, the market will be on a more stable footing by the end of the second half. However, we should not underestimate the enormous uncertainties.”
The IEA expects jet fuel and kerosene to experience a lengthier recovery as air traffic remains depressed. Jet fuel consumption will remain 25% below 2019 levels by the end of 2021, however, it may take years to fully recover, according to the IEA. If jet fuel is omitted from the forecast, IEA says demand will reach pre-COVID-19 levels by mid-2021.
AEGIS View: That’s a lot of “ifs” in the IEA conclusions, but we appreciate their candor. It’s wise for any oil producer to answer the question whether a constructive view of the oil market requires an assumption that OPEC+ continues a supply-quota policy into 2021. We think it does. Without OPEC holding back production, the global market is likely oversupplied. Further, if prices rise, we think OPEC’s commitment to supply cuts becomes less likely.
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