IEA raises 2020 oil demand forecast as prices fall lower

The International Energy Agency (IEA) raised its 2020 oil demand forecast but warned that the spread of COVID-19 posed a risk to the outlook just as crude oil prices Oil prices fell on Friday, adding to steep losses from previous session and heading weekly decline on worries of lockdowns due to surge in COVID-19 cases in U.S. Brent crude was down by 25 cents, or 0.6 per cent, at $42.10 a barrel, after falling more than two per cent on Thursday. U.S. oil fell 33 cents, or 0.8 per cent, at $39.29 a barrel after a drop of three per cent in the previous session. Brent looks set for a weekly decline of nearly two per cent and U.S. crude for a fall of more than three per cent. Trading was quiet with Singapore on holiday for an election. While many analysts are expecting economies and fuel demand to bounce back from the pandemic, record daily increases in coronavirus infections in the U.S., the world’s biggest oil consumer, raised concerns about the pace of any recovery.

Meanwhile the Paris-based IEA raised its forecast to 92.1 million barrels per day (bpd), up 400,000 bpd from its outlook last month, citing a smaller-than-expected second-quarter decline. “While the oil market has undoubtedly made progress … 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 IEA said in its monthly report. The easing of lockdown measures in many countries caused a strong rebound to fuel deliveries in May, June and likely also July, the IEA said. But oil refining activity in 2020 is set to fall by more than the IEA anticipated last month and to grow less in 2021, it said.

Demand in 2021 will likely be 2.6 million bpd below 2019 levels, with kerosene and jet fuel due to a drop in air travel accounting for three-quarters of the shortfall. “For refiners, any benefit from improving demand is likely to be offset by expectations of much tighter feedstock markets ahead. Refining margins will also be challenged by a major product stocks overhang from the very weak second quarter of 2020,” the IEA said. On the supply front, the IEA said the Organization of the Petroleum Exporting Countries and other producers including Russia, a grouping known as OPEC+, had shown 108% compliance with their pact to rein in output. Market driven cuts had also affected other producers, especially the United States, though U.S. supply was expected to slowly recover in the second half of 2020 while the lifting of force majeure on exports of Libyan crude could add another 900,000 bpd to global markets by the end of the year.