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Edward Bell - Senior Director, Market Economics
Published Date: 14 April 2021
The IEA revised up its oil demand forecast for 2021 by 210k b/d to 96.69m b/d for the year in its April Oil Market Report. That would take total growth to around 5.7m b/d for this year compared with a 8.7m b/d drop in 2020 as Covid-19 restricted global mobility and industrial demand for fuel and oil products. OECD Americas accounted for most the upward revision to demand (160k b/d) thanks to a strong start to vaccinations in the US and an expected burst of economic activity over coming months as restrictions are eased and Americans come out of the Covid-19 economic crisis in reasonably solid financial shape.
The IEA did highlight the rising number of Coivd-19 cases in India as a risk to demand this year and adjusted their projections for India downward. As curfews and restrictions spread across India in an effort to combat the spread of new virus strains, oil demand in India looks at serious risk of underperforming the IEA’s projection of a little under 5m b/d this year. Depending how long restrictions remain in place and how extensively they limit mobility, a sharp drop in India’s oil demand alone could push a delicately balanced market in Q2 into surplus. Turkey has also introduced new restrictions for at least two weeks, limiting inter-city travel and putting weekend curfews into place at earlier times.
Nevertheless, the overall upward revision to demand will be welcome news to OPEC+ producers who are in the process of adding 2m b/d of output from May until July and follows on from OPEC’s own monthly oil market report where they too revised demand higher. The April projection is also the strongest 2021 demand forecast the IEA has put out this year while estimates of the decline in 2020 have been reasonably steady.
Source: IEA, Emirates NBD Research
For production, the IEA estimated that OPEC+ hit compliance with output targets of 113% in March thanks to considerable additional cuts from Saudi Arabia (estimated at hitting 153% of its target) and better than 90% compliance among all other major producers. The UAE produced 2.61m b/d in March, according to the IEA, compared with a target of 2.63m b/d.
Despite demand conditions being at risk in key markets like India and a potential slow-down to vaccine distributions given safety considerations of some of the drugs available, oil markets have been reasonably steady in recent weeks. After declining almost 13% from a year-to-date peak of USD 69.63/b in mid-March, Brent futures have recovered around half of that decline and are trading close to USD 65/b. We are holding to our bullish expectation for oil prices this year (Brent futures at an average of USD 67.50/b) as we expect OPEC+ will react to signs of demand slipping by keeping output restraint an immediate and meaningful tool. The next OPEC+ meeting is in just two weeks (April 28th) where output levels for Q3 will be in focus.
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