The crude-oil glut left behind by the pandemic will clear by the end of next year, as markets face a gradual recovery marked by renewed strains on demand, the International Energy Agency has said.
“Demand is clearly going to be lower for longer than expected” when the virus emerged in the spring, the agency said in a report, trimming forecasts for world fuel consumption following a new wave of lockdowns. “The market remains fragile,” it warned.
In Europe, a tentative recovery is reversing, with fuel consumption down this quarter amid a surge of Covid-19 infections and measures to control the spread of the virus.
Still, as the world economy picks up again and the OPEC+ coalition keeps a tight rein on supplies, the IEA expects that bloated crude inventories will subside in the coming 12 months. Oil prices are already reflecting some of that optimism, having reached a nine-month high above $51 a barrel in London last week.
Global tanks will hold 625 million barrels more crude at the start of 2021 compared with pre-pandemic levels, an overhang that will dissipate by next December, the IEA said.
The Paris-based agency advises major economies on energy policy.
The rebalancing is mostly due to a revival in world fuel consumption, which, despite the latest stresses, remains on track for a vigorous rebound from this year’s historic collapse.
While the IEA lowered projections for global demand growth in 2021 by 110,000 barrels a day — because of sustained pressure on jet fuel and kerosene use — it nonetheless projects a significant jump of 5.7 million a day, or about two-thirds of the amount lost this year.
Consumption will average 96.9 million barrels a day in 2021. Purchases of gasoline and diesel will be “particularly strong,” returning to about 99% of pre-crisis levels.
In addition to resurgent demand, the world oil market is also being healed by the efforts of the Organization of Petroleum Exporting Countries and its allies, a group of producers led by Saudi Arabia and Russia.
The 23-nation network has made vast production cutbacks to offset the slump in consumption, and earlier this month agreed to scale back plans for restoring the idled supply. The group will carefully stagger the return of 2 million daily barrels in the coming months, beginning with a 500,000-barrel increment in January.
“The current deal is flexible and sophisticated, and shows that they are concerned about the short-term fragility of the market,” Neil Atkinson, head of the IEA’s oil markets and industry division, said.
“There is not much headroom for them to supply more oil than they currently anticipate.”