June 09, 2021

The IEA (International Energy Agency) released its Oil Market Report for May 2021.
After nearly a year of robust supply restraint from OPEC, bloated world oil inventories that built up during last year’s Covid-19 demand shock have returned to more normal levels. During March, OECD industry oil stocks drew by 25 mb to 2 951 mb, reducing the overhang versus the five-year average to only 1.7 mb (and 36.9 mb above 2015-19). Stocks continued to fall in April.
Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC pumped far below the call on its crude. In response, oil prices resumed their upward trajectory during April and into May. At the time of writing, ICE Brent futures traded near $69/bbl while WTI hovered around $65/bbl.
While the market looks oversupplied in May, stock draws are set to resume from June, even with global oil supply on the rise. OPEC ministers have endorsed their early April decision to boost supply by more than 2 mb/d from May to July, including a gradual return of 1 mb/d of Saudi production shut in on a voluntary basis since February. Further gains will come from Canada, the North Sea and Brazil after hefty maintenance is concluded. By year-end, world oil production is forecast to rise by 3.8 mb/d from April.
Under the current OPEC production scenario, supplies won’t rise fast enough to keep pace with the expected demand recovery. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 mb/d in 1Q21 to 99.6 mb/d by year-end. Weaker-than-expected 1Q21 oil use in the United States and Europe and a reduced outlook for India due to the recent surge in Covid-19 led us to revise down 2021 demand growth to 5.4 mb/d. The forecast for the second half of the year is largely unchanged, however, on the assumption that the situation in India and elsewhere improves.
India’s Covid crisis is a reminder that the outlook for oil demand is mired in uncertainty. Until the pandemic is brought under control, market volatility is likely to persist.
(Source: IEA – Image: Gazprom)