In a marked reversal from its earlier projections, the Paris-based International Energy Agency (IEA) cut forecasts for global oil demand “sharply” for the rest of this year as the resurgent pandemic hits major consumers, and predicted a new surplus in 2022.
Merely a month ago, the IEA was urging the OPEC+ alliance to open the taps or risk a damaging spike in prices. The oil cartel heeded calls to hike supply, which is now arriving just as consumption slackens.
The analysis also jars with Wednesday’s call from the US — the IEA’s most influential member — for the Organization of Petroleum Exporting Countries and its allies to ramp production up faster.
“The immediate boost from OPEC+ is colliding with slower demand growth and higher output from outside the alliance, stamping out lingering suggestions of a near-term supply crunch or super cycle,” the IEA said in its monthly report.
Oil prices have retreated 6 per cent this month as the contagious delta variant triggers renewed lockdowns in China and other key Asian consumers where vaccination rates are lagging. Brent futures are trading near $71 a barrel, having hit a two-year high near $78 in early July.
The “recent rally has lost steam on concerns that a surge in Covid-19 cases from the Delta variant could derail the recovery just as more barrels hit the market,” the IEA said.
The 23-nation Opec+ coalition led by Saudi Arabia and Russia agreed last month on a roadmap for restoring the rest of the oil supplies it shuttered when the pandemic emerged. The additional barrels are, however, starting to flow at an inauspicious moment.
Global oil demand “abruptly reversed course” last month, falling slightly after surging by 3.8 million barrels a day in June, the IEA said. The agency lowered estimates for consumption in the second half of the year by 550,000 barrels a day. Still, the IEA projects that world fuel use will continue to increase as the global economic recovery gathers pace, reaching an average of 98.9 million barrels a day in the last three months of this year.