The recent increase in coronavirus infections around the world has fuelled uncertainty over the demand forecast for oil, which is expected to fall by 7.9 million barrels per day this year, according to the International Energy Agency.
Overall demand for 2020 will be about 92.1 million bpd, with the pace of decline having slowed to 5.1 million bpd in the second half, the agency's monthly oil market report for July showed.
The worst of the decline was restricted to the first half of the year, during which a 10.75 million bpd fall was recorded.
“The strong growth of new Covid-19 cases that has seen the reimposition of lockdowns in some regions, including North and Latin America, is casting a shadow over the outlook,” the agency said.
The number of infections were more than 12.5 million yesterday, with the US accounting for a quarter of the world's cases, according to Johns Hopkins University, which is tracking the outbreak.
The major benchmarks, Brent and West Texas Intermediate, have remained largely stable over the last couple of weeks, trading in the $40 a barrel range.
Brent settled 2.1 per cent higher at $43.24 per barrel on Friday while West Texas Intermediate, which tracks US crude, closed 2.35 per cent higher at $40.55 a barrel.
The futures markets, however, points to much tighter conditions for the remainder of the year, the agency said.
A supply deficit is expected to be caused by production shut-ins around the world, notably in the shale basins of North America, and curbs being enforced by the Opec+ group of producers.
The alliance led by Saudi Arabia and Russia is cutting back 9.7 million bpd of output from the markets until the end of this month, with tapered cuts expected to continue until April 2022. A ministerial committee will meet on Wednesday to discuss the alliance’s compliance with curbs.
After their actions, global oil supply fell by 2.4 million bpd in June to a nine-year low of 86.9 million bpd, the agency said.
“Robust compliance with the Opec+ output deal and steep declines from other producers, led by the United States and Canada, has cut world oil output by nearly 14 million bpd since April.”
Supply could fall further by 7.1 million bpd this year if the Opec+ cuts remain in place, before recovering by 1.7 million bpd next year.
Global oil demand registered a 16.4 million bpd year-on-year decline in the second quarter but is recovering as Covid-19 movement restrictions are eased around the world.
Market dynamics improved as month-on-month demand in Asian economies such as China, which eased restrictions several months ago, and India rebounded by 700,000 bpd and 1.1 million bpd in May.
The world's demand for oil is expected to recover to 97.4 million bpd next year. However, this will still be 2.6 million bpd below 2019 levels, with declines in jet fuel and kerosene demand accounting for three quarters of the deficit.
The IEA's executive director Fatih Birol said last week that oil demand was unlikely to have peaked, despite multi-billion-dollar write-offs by several oil companies. He also remained optimistic that world demand could rebound to 100 million bpd levels should economic recovery remain robust.
Peak demand refers to a scenario where consumption reaches a high before levelling off and eventually declining.
“If the global oil demand goes back to 100 million bpd, I wouldn’t be surprised. If there is a strong economic recovery and no government policies to replace the oil use, we may well see that we go back to 100 million bpd and even higher than that,” he said.