The global oil market has begun to stabilise after a turbulent start to the year amid coronavirus, but the International Energy Agency (IEA) has warned recent regional outbreaks are “casting a shadow” on the shape of the recovery.
The relaxing of lockdown measures around the world has boosted fuel demand, while measures taken by the Opec+ alliance to curb global production, supported by market-driven cutbacks in non-Opec+ countries like the US, has brought a rebalancing that has settled crude benchmark prices in the region of $40 per barrel.
It is a welcome relief for a commodity market that witnessed freefalling prices in March and April and record low levels of demand, but as Covid-19 threatens a resurgence in some parts of the world – particularly Latin and North America, the IEA is cautious about the shape of any near-term recovery.
“While the oil market has undoubtedly made progress since ‘Black April’, the large, and in some countries, accelerating number of Covid-19 cases is a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside,” the organisation said in its latest oil market outlook, published today (10 July).
US cutbacks and strong compliance with Opec+ agreement have supported oil market recovery
According to the IEA, global oil supply fell by 2.4 million barrels per day (bpd) in June, to a nine-year low of 86.9 million bpd, as the Opec+ agreement to reduce oil production was enforced with good compliance from member countries, added to by “steep declines” in the US and Canada.
Global output since April has dropped by 14 million bpd, and provided the Opec+ agreement remains in place, production is expected to fall by 7.1 million bpd throughout 2020, before a “modest recovery” of 1.7 million bpd in 2021.
In the US, the IEA estimates oil production in May and June will record month-on-month declines of 1.3 million bpd and 0.5 million bpd respectively as producers continue to shut in production, although output is expected to grow in the second half of the year.
During the second quarter of 2020, worldwide oil demand fell by 16.4 million bpd, offset slightly by strong rebounds in China and India during May.
Over the whole of 2020, demand is projected to decline by 7.9 million bpd compared to 2019, with a 5.3 million bpd recovery expected for 2021.
This annual demand forecast for 2020 is slightly adjusted from the drop of 8.1 million bpd predicted in last month’s outlook due to a “less severe” second-quarter impact than previously anticipated – although the recovery forecast for 2021 has been trimmed from 5.7 million bpd, reflecting this “improved outlook” for 2020.
However the watchdog again caveated its projections, saying “the recent increase in Covid-19 cases and the introduction of partial lockdowns introduces more uncertainty to the forecast”.
