Global oil demand will not recover until well into 2021, even with a COVID-19 vaccine, the IEA says

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  • The International Energy Agency cut its forecast for oil demand growth by 400,000 barrels a day to show a decline of 8.8 million barrels per day this year. 
  • “It is far too early to know how and when vaccines will allow normal life to resume. For now, our forecasts do not anticipate a significant impact in the first half of 2021,” the agency said.
  • The IEA predicts a recovery in oil demand next year of 5.8 million barrels per day, but this is only 300,000 barrels per day higher than its forecast a month ago, even with drugmaker Pfizer’s promising COVID-19 vaccine trial results.
  • Surges in COVID-19 cases across the United States and Europe will drag on global demand growth, while major consumption hubs such as China and India are seeing an improvement in energy use.
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Global oil demand is going to fall more sharply than previously expected and a vaccine is unlikely to significantly boost consumption until well into next year, the International Energy Agency said on Thursday.

US drugmaker Pfizer said on Monday that trials of its COVID-19 vaccine had yielded promising results. This triggered a surge in global financial markets, in particular, in the price of oil, which has gained 11% this week to trade around its highest since August.

But the IEA, which advises Western governments on energy policy, said this development meant little for near-term expectations for crude oil demand. This is particularly true given the surge in cases of COVID-19 across the United States and Europe, where a number of major economies have total or partial national lockdowns back in place.

“As we publish this report, there is considerable excitement at news that an effective vaccine against COVID-19 might soon be available,” the IEA said in its monthly oil market report.

“However, it is far too early to know how and when vaccines will allow normal life to resume. For now, our forecasts do not anticipate a significant impact in the first half of 2021,” it said.

The Paris-based IEA cut its demand growth forecast by 400,000 barrels per day to a decline of 8.8 million barrels per day this year, compared with its forecast in last month’s market report.

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Consumption will pick up more quickly than the IEA believed a month ago, but only at a modest pace. The IEA expects oil demand to rise by 5.8 million barrels per day in 2021, compared with a predicted increase of 5.5 million barrels per day in its report last month.

The agency said: “Weak historical data and the resurgence of Covid-19 in Europe and the United States led us to revise down our near-term global demand outlook by 400,000 barrels per day in 3Q20, 1.2 million barrels per day in 4Q20 and 700,000 barrel per day in 1Q21.”

Crude oil futures were down around 1% on the day, with Brent crude around $43.42 a barrel, while WTI crude futures traded around $41.11 a barrel. 

The massive reductions in demand mainly come from wealthier countries in the Organization for Economic Cooperation and Development. Demand from emerging markets will be the driver over the overall pickup in global consumption, the IEA said, mainly thanks to improvement in China and India.

It said: “In 2020, global oil demand will be 91.3 million barrels, which is 8.8 million barrels per day lower than in 2019 and below the average level for 2013. In 2021, demand will recover by 5.8 million barrels per day to 97.1 million barrels per day, about 3 million barrels per day below the pre-Covid level in 2019.”

Other official forecasters have been similarly downbeat. The Organization of the Petroleum Exporting Countries said in its monthly market report on Wednesday that it expected oil demand to fall to its lowest since 2013 this year. 

Even though the outlook for demand for anything from road transportation fuels such as gasoline and diesel, or jet fuel and heating oil is precarious, oil supply is rising. The IEA estimates global output could rise by 1 million barrels per day in November alone, as US supply recovers, following a series of hurricanes, and as production in Libya rises.

Output from producers outside of the coalition of the Organization of the Petroleum Exporting Countries and their partners – OPEC+ – will fall by 1.3 million barrels per day in 2020. It will rise by 200,000 barrels per day next year. US supply will fall by 600,000 barrels per day this year and by 655,000 barrels per day in 2021, the IEA said.

“In the short term, the poor outlook for demand and rising production in some countries; for example, Libya (production has increased to 1 million barrels per day from only 100,000 barrel per day in August), Iraq and the United States (recovering from hurricane disruptions), suggest that the current fundamentals are too weak to offer firm support to prices. Physical crude prices remain below futures and this is a signal that markets are well supplied,” the IEA said.

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