The IEA has cut its 2021 global oil demand growth projection after another downgrade to jet fuel and kerosine consumption resulting from travel restrictions and border closures, which it expects to remain in place until Covid-19 vaccines are widely available.
"The understandable euphoria around the start of vaccination programmes partly explains higher [oil] prices, but it will be several months before we reach a critical mass of vaccinated, economically active people and thus see an impact on oil demand," the Paris-based energy watchdog said in its latest Oil Market Report (OMR). "In the meantime, the end of year holiday season will soon be upon us with the risk of another surge in Covid-19 cases and the possibility of yet more confinement measures."
The IEA now expects global oil consumption to increase by 5.69mn b/d next year, which is 110,000 b/d lower than the growth predicted a month ago. And it now sees 2020 demand falling by 8.82mn b/d, which is a 40,000 b/d steeper decline than forecast in the previous report.
Demand has partially recovered from a 16.3mn b/d fall in the second quarter compared with the same period of 2019, but it remains 6.2mn b/d down year-on-year in the fourth quarter as a result of a second wave of lockdowns, the IEA said.
Jet fuel and kerosine demand will increase by 720,000 b/d next year, but will remain 2.5mn b/d below pre-pandemic levels. Jet fuel and kerosine "will account for around 80pc of the overall 3.1mn b/d shortfall in consumption in 2021 versus 2019", the IEA said.
Other transport fuels are set to recover much more quickly. "In 2021, demand for both gasoline and diesel is projected to return to 97-99pc of their 2019 levels," the OMR said.
On the supply side, the IEA sees potential for global production to edge higher this month, even before the Opec+ group increases its collective quota by 500,000 b/d in January. Global supply rose by 1.5mn b/d in November to 92.7mn b/d as the US recovered from hurricane-related shut-ins and Libya's production increased, it said. Next year non-Opec supply is forecast to increase by around 500,000 b/d, partially recovering from an estimated 2.6mn b/d fall this year.
The global crude market will have a stock surplus of 625mn bl at the start of 2021 compared with December 2019, the OMR estimates. "If we assume that Chinese balances are neutral in 2021, the market will absorb the 183mn bl located elsewhere and in July it will move into deficit versus end-2019," it said.
