Consumption in the first quarter of 2021 will be 600,000 barrels a day lower than previously thought, the agency said as the coronavirus outbreak continues to impede people’s movements. In China, there are government calls for citizens not to travel over the Lunar New Year holidays, stoking concern that Asian demand will take a near-term hit, while vast swathes of Japan are in a state of emergency and several European nations are still locked down.
Despite the reduction in demand estimates though, global oil stockpiles stand to fall by 100 million barrels in the first quarter and the agency expects much steeper declines during the second half of the year. It comes as traders have been rushing back to the market on expectations of a recovery in global growth later this year.
After a scorching start to 2021 as Saudi Arabia announced unilateral output cuts, oil’s rally has run out of steam over the past few sessions as more virus lockdowns and travel restrictions sap short-term demand. Weakening physical crude prices in Asia have added some headwinds, but the outlook for later in the year is still strong with expectations that coronavirus vaccines will see movement start to increase again.
“We are still bullish even though our forecasted balance has weakened somewhat,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “Accelerating demand, only gradually reviving US shale supply and restrained supply from Opec+ should be a good backdrop for prices.”
In recent days there have also been small pockets of supply outages. Kazakh oil production fell by about 300,000 barrels a day on Monday due to planned maintenance, while Libyan output slipped over the weekend on pipeline repairs.