OPEC, IEA revise oil demand forecast upwards for this year

Two of the world’s prominent energy organisations—Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA)—have revised upwards their demand forecast for oil this year, which could help sustain a price rally. Demand will increase by 5.95 million barrels per day this year, which is around 70,000 barrels per day more than last month.

The influential oil cartel pegged its demand forecast on the back of an economic rebound as the spread and intensity of the Covid outbreak subsides across the world. OPEC producers have cut their production in order to sustain prices above a threshold, but may wind back the reduction if the demand pick up is maintained.

Meanwhile, the IEA has upgraded the forecast for oil demand growth by 230,000 barrels a day to 5.7 million barrels a day (mbd), but noted that the post-COVID recovery remained fragile.

Last month, the IEA also upgraded the forecast for world oil demand growth in 2021 by 0.1 mbd to 5.5 mbd. The upgrade was largely driven by China and the United States, where consumption is expected to climb up this year, the agency noted.

The revision in forecasts should lend solidity to oil prices. Benchmark crude oil prices are currently hovering around $64/barrel, easing from the recent highs of around $70/barrel. The upward revision in demand comes after the group’s de facto leader, Saudi Arabia, told the group at the last OPEC meeting that their oil demand projections were too low and that actual global oil demand would be higher.

Saudi Arabia wields enormous influence within OPEC and led the way in production cutbacks. One of the world’s largest crude oil importers India recently decided to diversify its imports more from other sources than the Middle East after it was unable to persuade them to increase oil output.

Crude oil accounts for the biggest share of India’s imports and any rise in prices of the fuel tends to push up inflation. However, lower food prices are likely to mitigate the impact on inflation to an extent.

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