By Audrey Lotechukwu
SAT, JULY 11 2020-theG&BJournal– Oil prices fell on Thursday as coronavirus cases continued to spike and some countries began re-imposition of lockdowns, but prices were quick to return to the $40 mark on Friday. Brent Crude closed Friday at $42.82 per barrel while the WTI gained 1.01% to $40.02 on August contract.
The market was remarkably stable through most of June with prices hovering around $40 as global oil supply dropped.
Oil supply fell by 2.4 mb/d in June, to a nine-year low of 86.9 mb/d, IEA said in its July Oil Market Report released Friday, on robust compliance with the OPEC+ output deal and steep declines from other producers, led by the United States and Canada. World oil output was cut by nearly 14 mb/d since April.
‘’If the OPEC+ cuts stay in place as agreed, global supply could fall by 7.1 mb/d in 2020 before seeing a modest recovery of 1.7 mb/d next year,’’ IEA predicts.
IEA reported demand also fell by 16.4 mb/d year-on-year in 2Q20 as lockdowns were imposed to combat the Covid-19 pandemic. Demand rebounded strongly in China and India in May, increasing by 0.7 mb/d and 1.1 mb/d m-o-m, respectively.
World oil demand is projected to decline by 7.9 mb/d in 2020 and to recover by 5.3 mb/d in 2021, but ‘’the recent increase in Covid-19 cases and the introduction of partial lockdowns introduces more uncertainty to the forecast,’’ IEA said.
For the second half IEA expects an improvement in the level of decline to 5.1 mb/d. ‘’We estimate that global oil demand this year will average 92.1 mb/d, down by 7.9 mb/d versus 2019, a slightly smaller decline than forecast in the last Report. This is mainly because the decline in 2Q20 was less severe than expected. For 2021, we have made some minor adjustments to our outlook and demand will be 97.4 mb/d; but due to the improved outlook for 2020 the recovery next year is lower at 5.3 mb/d. Average demand in 2021 will be 2.6 mb/d below the 2019 level with jet/kerosene accounting for three-quarters of the deficit.’’
On the supply side, global oil production fell sharply in June to stand 13.7 mb/d below the April level. The compliance rate with the OPEC+ supply agreement was 108%. This includes over-performance by Saudi Arabia which cut production by 1 mb/d more than required, reducing OPEC crude output to its lowest point in nearly three decades. This solid performance by the OPEC+ group has been supplemented by substantial market-driven cuts, mainly in the United States. Total US oil production fell by nearly 1 mb/d in April versus March and we estimate that May and June will see further month- on-month falls of 1.3 mb/d and 0.5 mb/d, respectively.
However, in the second half of the year supply could start to grow: ‘’we see US production bottoming out and then slowly growing and OPEC+ countries are set to ease their existing cut by around 2 mb/d from August. Also, by the end of the year Libya’s oil production could be as much as 0.9 mb/d higher than it is today,’’ IEA said.
‘’While the oil market has undoubtedly made progress since “Black April”, the large, and in some countries, accelerating number of Covid-19 cases is a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside.’’