While the oil market rebalancing looks fragile in the first quarter of 2021, global oil stocks are expected to rapidly draw down in the second half of this year as demand rises, setting the stage for OPEC+ to ease production cuts even if higher prices tempt producers from outside the group to boost output, the International Energy Agency (IEA) said on Thursday.
This year, world oil demand is expected to grow by 5.4 million barrels per day (bpd) compared to 2020, the agency said in its closely-watched Oil Market Report for February.
That’s 100,000 bpd lower than the projection in the January report when the IEA expected demand to rise by 5.5 million bpd year over year in 2021.
The latest estimate from this month pegs total global oil demand reaching 96.4 million bpd, which would be recovering some 60 percent of the volume lost to the pandemic in 2020, the IEA said today.
The agency’s estimates are largely in line with that of many analysts and other forecasters who expect demand to be weak in the first quarter of 2021 but pick up pace in the latter half of the year with the rise of vaccination rates and eased travel restrictions.
“While oil demand is expected to fall by 1 mb/d in 1Q21 from already low 4Q20 levels, a more favourable economic outlook underpins stronger demand in the second half of the year,” the IEA said in its report.
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Oil producers outside the OPEC+ alliance have started to respond to the rally in oil prices, the agency noted.
“Led by the prolific Permian Basin, US drilling and completion rates have risen steadily in recent months,” the IEA said.
Total oil supply from non-OPEC+ producers is set to increase by 830,000 bpd in 2021, compared to an annual decline of 1.3 million bpd in 2020.
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The IEA still expects U.S. crude oil supply to hold largely flat at around 11.2 million bpd after falling by 940,000 bpd last year, while “Canada, now pumping at record rates, has restored nearly all the volumes shut in at the height of last year’s demand collapse,” the IEA said.
By Tsvetana Paraskova for Oilprice.com
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Moreover, OPEC+ is well advised to ignore any advice from the International Energy Agency (IEA) on prices or level of production. The interests of OPEC+ and IEA are diametrically opposed. OPEC+ needs higher prices for its members and stable global demand while the IEA representing the major crude oil consumers (mostly western consumers) needs lower prices for its members and therefore it tries to depress oil prices by misleading reports and wrong advice.
OPEC+ alone stood between the pandemic and the total collapse of both the global oil market and the oil industry while the IEA spent its time hyping about US shale oil production and misleading the market by its biased reports. How could anyone forget the IEA's ludicrous projection that by 2025 US oil production will be bigger than the combined production of both Russia and Saudi Arabia.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London