Oil markets Tuesday ignored a downgrade in 2021 oil consumption to end higher as the inauguration of President Biden approaches and with it hopes for more stimulus spending.
West Texas Intermediate was up around 1% at $US53 a barrel while Brent was a touch easier at $US55.85 a barrel.
Events in the US drew the market’s focus for WTI but Brent was more responsive to a new forecast that expected the recovery in oil demand this year will be slower to happen.
That will be because of the latest waves of new COVID-19 infections in the US, Europe, parts of Asia and especially China, according to the International Energy Agency (IEA) January oil report.
But the Agency still sees a second half recovery strengthening thanks to vaccine roll-outs and stimulus measures and a relative shortage of supply.
In its January monthly report the IEA said it now expects world oil demand to recover by 5.5 million barrels a day to 96.6 million this year. That is a downward revision of 300,000 barrels a day from December’s assessment.
After 2020’s collapse of 8.8 million barrels a day in demand thanks to the impact of the pandemic and widespread lockdowns and border closures, 2021 will see daily consumption still below 2019’s 101 million barrels a day.
The Paris-based energy agency said oil demand growth was projected to fall slightly during the first three months of the year in the wake of tougher government border controls that call for additional travel restrictions domestically and internationally.
This is expected to curb worldwide mobility once again and has forced the IEA to trim its first-quarter forecast for oil demand growth to 94.1 million barrels per day.
That would see oil demand return to near year-ago levels and reflects a downward revision of 0.6 million barrels from December’s oil market report.
“The global vaccine roll-out is putting fundamentals on a stronger trajectory for the year, with both supply and demand shifting back into growth mode following 2020′s unprecedented collapse,” the IEA said in its closely-watched report.
“But it will take more time for oil demand to recover fully as renewed lockdowns in a number of countries weigh on fuel sales,” it added.
The emergence of new strains of the virus, renewed lockdowns in China and logistical hurdles facing vaccine roll-outs contributed to the IEA’s gloomier outlook.
“Border closures, social distancing measures and shutdowns…will continue to constrain fuel demand until vaccines are more widely distributed, most likely only by the second half of the year,” it said in its monthly report.
“This recovery mainly reflects the impact of fiscal and monetary support packages as well as the effectiveness of steps to resolve the pandemic,” the IEA said.
After falling by a record 6.6 mb/d in 2020, world oil supply is set to rise by over 1 mb/d this year, with OPEC+ adding more than those outside the bloc. There may be scope for higher growth given our expectations for further improvement in demand in 2H21,” the IEA said.
After holding flat at 92.8 mb/d in December, global supply is rising this month with OPEC+ due to ramp up during January.
Both supply and demand are on track for recovery this year, and efforts by top producers to balance the market by reining in output helped lower stockpiles of crude and oil products worldwide, though oil stocks remained stubbornly close to a May peak.
The IEA reckons that the second half of the year, will see “much more oil is likely to be required” by the market.
The current cold Asian and European winters along with supply discipline by OPEC and its allies boosted crude prices, the IEA said, while the US shale industry was expected to keep production flat, even though they have boosted the number of working oil rigs since August to 275 last week (from the low of 176 in August)
“If they stick to those plans, OPEC+ may start to reclaim the market share it has steadily lost to the U.S. and others since 2016,” the IEA said.
“Higher demand will allow supply to start rising this year. World oil supply is now expected to increase by 1.2 mb/d in 2021 following a record decline of 6.6 mb/d last year. Much more oil is likely to be required, given our forecast for a substantial improvement in demand in the second half of the year.
“Our balances assume that during 2H21, OPEC+ will still withhold 5.8 mb/d of oil from the market as per the group’s April 2020 agreement.
“Higher crude prices could also provide an incentive to increase production by the US shale industry, which saw the biggest fall in output last year,” IEA said in the report.