The new wave of COVID-19 infections and renewed lockdowns will slow down the global oil demand growth, dampening the hopes for a strong rebound in the near future, according to the Institute of International Finance (IIF).
The global association of the financial industry in its new Oil Market: Expanding supply, fragile demand recovery report states that, it is unlikely that the demand for oil across the globe will reach the 2019 level of 100 million barrels per day before 2023.
“The decline in the elasticity of global demand since the mid-1990s, with respect to GDP, will accelerate. Changes in behavior due to the pandemic and the adoption of policies by major economies to support a low-carbon future will further reduce the growth in global demand for oil,” Garbis Iradian, IIF’s chief economist for the Middle East and North Africa, said.
With an aim to restore a quarter of the production cuts agreed a year ago in response to the pandemic, the Opec+ alliance led by Saudi Arabia and Russia is planning to add two million barrels per day back to the market over the next three months.
Earlier this week, Brent, the international marker, settled at 3.38 percent higher at $64.86 per barrel. West Texas Intermediate, the US gauge, closed 3.87 percent higher at $61.45 per barrel. Murban, the Abu Dhabi benchmark, closed 3.5 percent higher at $63.90.
Even though IIF does not expect a near-term recovery in global oil demand to pre-pandemic levels, it forecasts oil demand across the globe to rise by 5.4 million bpd in 2021 to 96.8 million bpd after falling by 8.5 million bpd in 2020, on the back of the relief measures.
“Fiscal stimulus in advanced economies, particularly in the US, and the progress of coronavirus vaccinations should support the strong global economic recovery and global oil demand,” Mr. Iradian said.
The global association estimates that in advanced economies oil consumption will increase by 2.4 million bpd, driven mainly by the US and in emerging and developing economies, oil demand will rise by 3 million bpd, pushed by China and India. Meanwhile, the IIF said it is maintaining its oil price forecast at $60 per barrel for 2021.
“While rising oil prices continue to reflect a gradual recovery in global demand, they were also supported by temporary supply limitations,” Mr. Iradian said. These barriers included the recent Suez Canal blockade, which backed up shipments of about 13 million barrels of crude oil and petroleum products at the entrances of the canal.