Oil demand drop set to last throughout 2021 and beyond, warns IEA
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The drop in oil demand caused by the coronavirus pandemic will endure throughout 2021 and even beyond, the International Energy Agency has said, mostly due to a slower recovery in air travel.
In its first forecast for next year, the IEA said demand would rise by 5.7m barrels a day to 97.4m b/d. This is a rebound from the expected 8.1m b/d fall in 2020, set to be the largest drop on record. But it will still put 2021’s total demand 2.4m b/d below 2019.
“We have to assume that oil demand doesn’t get back to around 100m b/d till some point in 2022,” said Neil Atkinson, head of oil markets at the IEA. “But even that assumes strong economic growth in that year and no resurgence of Covid-19, so we can’t be sure. It might well be into 2023.”
In its monthly oil-market report, the IEA said the “dire” situation of the aviation sector was largely to blame, noting that passenger traffic this year was expected to be almost 55 per cent lower than in 2019. The industry will remain a drag beyond next year, the Paris-based body estimates. The IEA expects jet fuel demand to drop by 3m b/d in 2020 and then rebound by just 1m b/d in 2021.
The agency cited data from the International Air Transport Association forecasting that airlines would probably still be making heavy losses in 2021. Several carriers have said they do not expect a return to normal traffic levels before 2022 or 2023.
Global appetite for crude has plummeted this year as governments enacted travel bans and lockdowns of entire countries to slow the virus’s spread. In response, big producing nations agreed to curb their output to bring some stability to prices.
In April, the Opec cartel and allies including Russia agreed to make collective cuts of 9.7m b/d. Earlier this month, they decided to keep these curbs in place until the end of July, before gradually easing them.
Global oil supply plunged by 11.8m b/d in May, reflecting falls in output from non-Opec producers such as the US and Canada too. Overall, the IEA expects supply to drop by 7.2m b/d this year before a modest 1.7m b/d recovery in 2021.
Brent crude, which fell to 18-year lows in April below $20 a barrel, has since recovered to about $40 a barrel as economies reopen around the world and as cuts in supply take effect.
“If recent trends in production are maintained and demand does recover, the market will be on a more stable footing by the end of the second half [of 2020],” the IEA said.