The International Energy Agency’s outlook for global oil demand improved from a month-earlier forecast, but said its latest estimate was predicated on the course of the COVID-19 pandemic, which is making a resurgence in the US.
Demand for oil is expected to slump by 7.9 million barrels per day in 2020 and then rebound by 5.3 million barrels per day the following year, the agency said in its monthly report for July. Last month, it had forecast a drop in world demand of 8.1 million barrels per day this year and a recovery of 5.7 million barrels per day in 2021.
The US on Thursday reported more than 63,000 new coronavirus cases on Thursday, up by more than 16% from a week earlier, according to Johns Hopkins University. Texas, California, and Florida each reported a record number of deaths on Thursday.
The jump in the case count in India, South Africa and Mexico “continues unabated, as does the flat-though-high trend in Brazil,” Pantheon said in a report. Australia’s second-largest city, Melbourne, is reportedly in lockdown for six weeks to stem the spread of the virus.
“The recent increase in COVID-19 cases and the introduction of partial lockdowns introduces more uncertainty to the forecast,” the International Energy Agency said.
Crude prices have oscillated between $38-$43 per barrel after increasing for a second straight month in June. The gains were supported by improved fundamentals but capped by the resurgence of the COVID-19 virus, which is leading to economic uncertainty, the IEA said.
Global oil supply plunged by 2.4 million barrels per day in June to a nine-year low of 86.9 million per day, the agency said. “Robust” compliance with a production cut agreement of 9.7 million barrels per day by the Organization of the Petroleum Exporting Countries and non-OPEC members led by Russia, as well as declines especially in the US and Canada, have reduced output by almost 14 million barrels per day since April.
The global cuts have helped balance the equation between supply and demand, which the IEA said plummeted by 16.4 million barrels per day in the second quarter because of the impact of the coronavirus crisis on the demand domestic and international travel.
In June, the agency said floating storage of crude oil fell by 34.9 million barrels from an all-time high of 176.4 million barrels in May, the month in which West Texas Intermediate futures contracts turned negative for the first time in the history of the industry amid a storage crunch.
Tightening oil balance due in part to the rebound in demand from India and China and “a flatter forward price curves reduced the incentive to store oil,” the IEA said in its report.
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