Oil market rebalancing to make ‘slow progress’ on weak fundamentals, says IEA
The International Energy Agency has trimmed its oil demand estimate for 2020 on the resurgence of coronavirus in Europe and the US and said it does not expect a “significant boost in oil demand” from a vaccine until at least the second half of 2021.
The IEA in its latest monthly oil market report published Nov. 12 said the task of re-balancing the oil market will make “slow progress” as fundamentals remain weak due to the poor outlook for demand and rising production in some countries.
The IEA now expects oil demand to plunge by 8.8 million b/d in 2020, a downward revision of 400,000 b/d from its previous forecast.
While demand will grow by 5.8 million b/d in 2021, it does expect not a significant boost in oil demand from a vaccine until at least the second half of the year. The IEA assumes that vaccines will be widely available from mid-2021, from which mobility and oil demand will “return progressively to normal conditions.”
“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,” IEA said in the report.
The Paris-based agency said the vaccine news announced this week by Pfizer and bioNTech is unlikely to ride to the rescue of the global oil market for some time. But it said it would contribute to a demand recovery next year, with a boost expected in the second half of 2021.
“Our outlook continues to assume that vaccines will be widely available by the middle of 2021. Under this assumption, economic activity and thus oil demand should receive a boost in H2 2021,” the IEA said.
The second wave of coronavirus infections in Europe has led to more restrictions on mobility, prompting the IEA to revise down its global demand outlook for this year.
The IEA said this will “temporarily halt the demand recovery seen in Europe,” but it does not think these latest measures will be as significant as in the first wave over March-May.
“Demand in Europe will fall by 2.1 million b/d year on year in November, compared with the 4.1 million b/d fall registered in April during the first lockdown,” it said.
The divergence of demand between Europe, the Americas and the rest of the world is likely to persist.
The demand recovery continues in Asia, Africa and Latin America but the reintroduction of containment measures in the Americas and Europe will further slow down transport fuel demand, the IEA said.
“We continue to assume in our outlook that countries will have to fight sporadic resurgences of the virus by implementing social distancing measures,” it added. “The accelerating development and eventual deployment of vaccines could reduce uncertainty and support investment and growth next year.”
The demand bright spots remain centered on Asia, notably China and India.
Indian oil demand has rebounded sharply as the South Asian country reopened its economy in October.
The IEA now expects oil demand in India to average 4.6 million b/d in 2020, a fall of 460,000 b/d from the previous year, while demand in 2021 will increase to 4.97 million b/d.
The IEA noted that the Chinese petrochemical industry “has benefitted from strong domestic demand and exports of medical equipment to aid the fight against the virus.”