IEA lowers global oil demand forecast as key consumers grapple with pandemic

Opec on Tuesday had maintained an optimistic outlook for global demand and left its forecast unchanged

Fuel storage tanks connected to the Colonial Pipeline Co. system in an industrial area of the Port of Baltimore in Baltimore, Maryland, U.S., on Tuesday, May 11, 2021. Fuel shortages are expanding across several U.S. states in the East Coast and South as filling stations run dry amid the unprecedented pipeline disruption caused by a criminal hack. Photographer: Samuel Corum/Bloomberg
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The International Energy Agency revised down its expectations of global oil demand by 270,000 barrels per day on the back of resurging Covid-19 infections in key demand centres across the world.

The Paris-based agency now expects oil demand to rise by 5.4 million bpd in 2021.

The forecast is in contrast to Opec's estimations for this year. The Vienna-based exporters' group left its demand forecast for 2021 unchanged on Tuesday, citing global economic growth and an easing of mobility restrictions in developed countries.

Opec said it expects to see an increase in consumption of 6 million bpd, with global demand averaging 96.5 million bpd for the year.

"The recovery in global oil demand remains fragile as surging Covid cases in countries such as India and Thailand offset recent, more positive trends in Europe and the US," the IEA said in its latest report.

India, the world's third-largest consumer of crude, is battling a brutal second wave of the Covid-19 pandemic that has led to lockdowns in selected states and muted energy demand. The South Asian nation has recorded more than 23.3 million infections and more than 254,000 deaths so far.

"Indian oil demand began falling in March (-110,000 bpd m-o-m) and plunged in April (-390,000 bpd m-o-m) as authorities imposed increasingly stringent measures to contain the spread of the virus and as people sheltered at home," the report said.

Demand for crude in India is expected to fall even further in May by 825,000 on a month-on-month basis, according to the IEA.

In its oil market report for May, the agency downgraded the country's oil demand for the second quarter by 630,000 bpd, but left its estimates for the second half largely unchanged on expectations of improved vaccination distribution and containment of the pandemic.

India's overall demand for 2021 has also been revised lower by 170,000 bpd on average.

Some 335,338 new cases of Covid-19 were reported across the country on Wednesday, with 4,205 deaths, according to the country’s Ministry of Health.

"India’s Covid crisis is a reminder that the outlook for oil demand is mired in uncertainty," the IEA said.

"Until the pandemic is brought under control, market volatility is likely to persist."

On the supply front, global production rose by 330,000 bpd to 93.4 million bpd in April and is expected to increase in May as Opec+, the group headed by Saudi Arabia and Russia, eases cuts.

Opec+ plans to incrementally add a total output of 2 million bpd by July.

Saudi Arabia, which supported the group's restrictions by volunteering to cut 1 million bpd until April, will phase out the curbs from May onwards.

Global oil supply is set to expand by 1.4 million bpd in 2021, following a 6.6 million bpd contraction last year. Outside of Opec, Canada is expected to bring more supply on stream with 340,000 bpd in additional output. The US, the world's largest producer of oil and gas, is set to register a contraction of 160,000 bpd in 2021.