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PARIS: Oil demand dropped last month as the coronavirus surged in India and elsewhere, the IEA said Wednesday, in a reminder that the global recovery from the pandemic remains fragile.
Nevertheless, the International Energy Agency said in its latest monthly report that its outlook for a strong rebound in energy demand in the second half of the year remains unchanged as expanding vaccination programs allow the global economic recovery to power ahead.
The IEA said that global oil demand fell by 130,000 barrels per day in April from March, and remains lower than at the end of last year.
“The recovery in global oil demand remains fragile as surging COVID-19 cases in countries such as India and Thailand offset recent more positive trends in Europe and the US,” it said.
The IEA lowered slightly its forecast for overall demand growth this year, to an increase of 5.4 million barrels per day (mbd), due to the pandemic’s continued grip on much of the world at the beginning of the year.
However, it still sees demand nearly recovering to pre-pandemic levels by the end of the year. It forecasts global oil demand to reach 99.6 mbd in the fourth quarter of this year, not far off the 100.6 in the final quarter of 2019.
But the IEA doesn’t forecast supply to rise as sharply as demand with OPEC+ producers not fully ramping up production.
At the start of the Covid-19 crisis OPEC and its allies including Russia failed to agree to restrain production, instead they ramped it up to gain market share, resulting in a crash in prices that even saw some oil contracts briefly turn negative.
That also resulted in inventory levels surging higher. That overhang in inventories is only now being worked off as OPEC+ continue to only slowly increase output after having cut it sharply last year to stabilize prices.
If the group continues along its current path the gap in demand for its products and production could reach 2.5 million barrels per day by the final quarter of this year, the IEA estimates.
Even if Iran reaches a deal easing sanctions the gap would still be 1.7 mbd, it added.
A reduction in inventories in coming months would give OPEC+ nations greater leverage over prices.
The countries have the ability to rapidly increase output to meet demand.