Cuts in oil supply and a record rebound in demand in 2021 will help put the fossil fuel industry on better footing even as the pandemic hammers oil demand, the International Energy Agency said Tuesday.
Demand for oil will rebound by a record 5.7 million barrels per day even as world demand for crude drops by 8.1 million barrels in 2020, the IEA reported. The report comes as city officials ease up on economic lockdowns, which is spurring a recovery in crude demand.
Officials began instituting strict stay-at-home orders in early March to slow the spread of a pandemic that originated in China before spreading across the world, killing a reported 116,000 people in the United States. Millions of Americans filed for unemployment benefits as a result of the lockdowns.
President Donald Trump played a big role in getting Russia and the Organization of the Petroleum Exporting Countries to drop output in April, bringing production to 9.7 million barrels a day.
Prices plunged into the $30s in March as Saudi Arabia pushed for a cut in output to prop up prices, while Russia worked to infuse the market with hundreds of thousands of barrels of oil. Saudi Arabia relented and moved to increase output, kicking off a prolonged sell-off that roiled global markets.
“The market will be on a more stable footing by the end of the second half [of 2020]” if oil-producing nations stick to their plans to constrict global supply, the IEA said in its report. OPEC’s move to extend supply cuts into July will inevitably help speed up the oil market’s recovery, the IEA noted.
If jet-fuel demand is not taken into consideration, then global oil demand should reach pre-crisis levels in mid-2021, according to IEA’s executive director Fatih Birol.
“The key issue is when people will start to fly,” Birol said Tuesday, adding: “if there is a solution to the coronavirus problem and the economy rebounds as foreseen, we may well see in the near term oil demand go back to pre-crisis levels.”
A drop off in air travel, which constitutes a large chunk of global oil consumption, means that jet fuel and kerosene will recover by just 1 million barrels a day in 2021 after falling 3 million barrels during 2020, the IEA expects. That number leaves demand well-below pre-crisis levels.
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