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    IEA Sees MInor Recovery in Oil Demand


But caveats remain, including Opec+ compliance with quotas and Covid-19.

by: William Powell

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IEA Sees MInor Recovery in Oil Demand

The gradual easing of lockdown measures has led to an upward adjustment of 3.2mn barrels/day to the International Energy Association's forecast second-quarter demand figures; but it is still sharply down on last year by 19.9mn b/d, the watchdog said May 18.

It warned that major factors remained the extent to which Opec+ member states adhered to their commitments to cut output, on the supply side; and whether the crisis caused by Covid-19 was past its peak, on the demand side. It said the answers to these questions in the coming weeks, as governments ease their lockdowns, would have major consequences for the oil market.

Although the second half of the year will be slightly weaker than previously forecast, its outlook for 2020 as a whole shows a demand fall of 8.6mn b/d, 0.7 mb/d more than in its previous oil market report. 

Global oil supply is set to fall by a spectacular 12mn b/d in May to a nine-year low of 88mn b/d. For some Opec countries, such as Saudi Arabia, Kuwait and the UAE, lower May production is from record highs in April. Led by the US and Canada, April supplies from countries not part of the agreement were already 3mn b/d lower than at the start of the year.

Peak global refining reductions have shifted to May as the IEA's April throughput estimate was revised up on new data and higher demand. In the second quarter of the year, global runs are expected to fall by 13.4mn b/d, with 2020 average throughput down by 6.2mn b/d.

Total OECD stocks stood 46.7mn b above the five-year average in April and now provide an "incredible" 90 days of forward demand coverage, the IEA said. Floating storage of crude oil increased by 9.9mn barrels to 123.8mn barrels.

Since 'Black April' when the US crude benchmark closed at a negative price for the first time ever, the outlook has improved somewhat and prices, while still far below where they were before the start of the Covid-19 crisis, at around $30/b they have rebounded from their April lows. 

The number of people confined will fall, the IEA estimates, from a recent peak of 4bn to about 2.8bn. Mobility still remains limited for many citizens, but businesses are starting to reopen gradually and people are returning to work,

Assuming full compliance, and factoring in declines in other countries, the IEA estimates a reduction in global supply in May of 12mn b/d relative to April. Saudi production in June will be an "extraordinary" 4.4mn b/d below April’s record level. By year-end, however, it is the US that is the biggest contributor to global supply reductions compared with a year ago. US production could be 2.8mn b/d lower than at the end of 2019.

Norwegian consultancy Rystad said May 18 that both Brent and WTI oil prices were above $30/b for the first time in two months as the oil balance seems now closer. It said that despite the "unquestionable leadership of Opec members," shut-ins outside Opec have greatly contributed to the decline in supply, with curtailments "faster and deeper than initially anticipated."