IEA Lowers 2020 Oil Demand Forecast; Cites Weak Aviation Sector

Marco Green
August 14, 2020

Oil headed for a second weekly gain as signs an energy demand recovery in the USA is gaining traction outweighed a more pessimistic report from the International Energy Agency.

The downward revisions in the IEA report signaled that "oil prices have been getting a bit ahead of the economic recovery", said Michael Lynch, president of Strategic Energy & Economic Research.

Global supply is plentiful, but demand fundamentals are still out of balance.

Last month OPEC+ eased the cuts to around to 7.7 million bpd until December from a previous reduction of 9.7 million bpd, reflecting a gradual improvement in global oil demand. The situation is impacted by the return of 2.5 million barrels when the OPEC+ voluntary production adjustment ended, increased United States oil production and low demand.

"Jet fuel demand remains the major source of weakness", the IEA said in its monthly report.

It added that oil supply rose by 2.5 million barrels per day to reach 90 million barrels per day in July, after OPEC kingpin Saudi Arabia ended its voluntary production cut, the United Arab Emirates exceeded its OPEC+ target and US production started to recover. Crude production is now just 100,000 to 200,000 barrels a day, the consultant said in a report.

OPEC estimates that the world will consume 90.6 million barrels a day in 2020, rising to 97.6 in 2021.

Opec, on the other hand, has kept its oil demand growth forecast for next year unchanged.

The dollar fell to its lowest level in a week against a basket of currencies.

OECD industry stocks continue to build as there is plenty of supply on the market.

The CEO of CMarkits, Yousef Alshammari, said he expects American "commercial inventories to return below 450 million barrels" by the second half of 2021. "For road transport fuels, demand in the first half of 2020 was slightly stronger than anticipated, but for the second half we remain cautious and the upsurge in COVID-19 cases has seen us downgrade our estimates, mainly for gasoline".

Jet fuel demand remains a major source of weakness, as the number of aviation kilometres travelled in July was still 67 per cent lower than a year ago.

Oil prices held largely steady on Thursday after the International Energy Agency lowered its 2020 oil demand forecast following unprecedented travel restrictions and data showing a decline in USA inventories provided some support, Reuters reported.

The OPEC+ joint ministerial monitoring committee meets next week as scheduled in their attempt to measure market activity every month. This decision will add about 2 million barrels a day into the overall market.

Oil prices have been range-bound since mid-June with Brent trading between $40 and $46 per barrel, and WTI between $37 and $43.

Other reports by Click Lancashire

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