IEA Forecasts Major Oil Demand Rebound in October, Additional 1.6m bpd till End of 2021

IEA Forecasts Major Oil Demand Rebound in October, Additional 1.6m bpd till End of 2021

Emmanuel Addeh

The International Energy Agency (IEA), has predicted that global demand for crude oil will rebound in October by as much as an additional 1.6 million barrels per day and continue in that line till the end of 2021 on the back of abating Covid-19 cases.

Making the disclosure in its oil market report (OMR) for September, IEA, one of the world’s most authoritative and timely sources of data, which forecasts and analyses the global oil market, however announced that demand declined in Q3, due to a resurgence of the pandemic in Asia.

The report noted that world oil supply fell 540 kbd month-to-month in August to 96.1 mb/d, but is expected to hold steady in September as unplanned outages offset increases from the Organisation of Petroleum Exporting Countries (OPEC) and its allies known as OPEC+.

It added that Hurricane Ida shut in 1.7 mb/d of oil production along the US Gulf Coast at end-August, with potential supply losses from the storm, stressing that supply should resume in October as OPEC+ continues to unwind cuts, outages are resolved and as other producers increase.

“Already signs are emerging of Covid-19 cases abating with demand now expected to rebound by a sharp 1.6 mb/d in October, and continuing to grow until end-year. Global oil demand is now expected to rise by 5.2 million bpd this year and by 3.2 million bpd in 2022, ”IEA said.

According to the report, a steep fall in China’s refinery activity in July, followed by Hurricane Ida’s impact on US refining in August and September resulted in an 830 kbd revision to the 3Q21 global refining, which now stands at 78.5 million bpd, up 1.5 million bpd from 2Q21.

In addition the IEA noted that in August, the first significant decline in crude prices since September 2020 boosted product cracks and refinery margins across the board.

“Prices fell on average in August, trading in a wide $8-9/bbl range, and the forward price curve flattened substantially. The drop reflects concerns about economic growth, inflation prospects and weaker oil demand linked to rising Covid-19 infections.

“By early September, supply losses from Hurricane Ida lifted prices almost back to early July levels. North Sea Dated prices lost $4.24/bbl in August to $70.75/bbl and WTI a fell $4.73/bbl m-o-m to $67.73/bbl,” it noted.

The IEA report noted that expected outages during August forced a decline in supply for the first time in five months and extended the sharp drawdown in global oil stocks, “the most severe by far being Hurricane Ida, which wreaked havoc on the key US Gulf Coast oil producing region at the end of August, knocking 1.7 mb/d offline.”
Added to that, it pointed out that concerns over the impact of rising Covid-19 cases on oil demand kept a lid on prices, “however, with benchmark crudes falling month-on-month before edging marginally higher in early September.”

IEA had last month said production outages led to further sharp declines in inventories, but explained that with nearly 900kbd of crude output and 700kbd of refinery capacity offline, hefty draws are expected to continue through September.

With US government loaning barrels from its strategic reserves to the region’s refiners to help offset crude shortfalls and China tapping into its strategic reserves too, selling for the first time ever, from state-owned tanks in an effort to dampen domestic oil prices and inflationary pressure, IEA noted that demand will likely increase as the major consumers seek to restock.

It added: “We have revised down our world oil demand forecast for August and September by nearly 600 kb/d as China and a number of other South East Asian countries enforce more mobility restrictions.

“Strong pent-up demand and continued progress in vaccination programmes should underpin a robust rebound from 4Q21. Our annual growth forecast is revised marginally lower since last month’s report for 2021 (-110 kb/d) to 5.2 million bpd while 2022 growth is slightly higher, at 3.2 million bpd.

“The market should shift closer to balance starting from October if OPEC+ continues to unwind production cuts. Even so, it is only by early 2022 that supply will be high enough to allow oil stocks to be replenished. In the meantime, strategic oil stocks from the US and China may go some way to help plug the gap,” it noted.

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