Forecasts of a new oil super-cycle are exaggerated, with global crude inventories still far higher than they were a year ago when the coronavirus began to hammer oil demand, the International Energy Agency said Wednesday.
In its monthly market report, the IEA gave a further 100,000-barrel-a-day boost to the amount by which it expects global oil demand to rebound in 2021--now 5.5 million barrels a day--while also forecasting another annual drop in U.S. supply. The agency expects American crude production to fall by 180,000 barrels a day.
A cocktail of factors, such as cold winter weather in the first quarter and a strengthening global economy supported by vaccination rollouts in the third and fourth quarters was behind the IEA's increased demand forecast. Demand in 2021's final quarter will only be 1.4 million barrels a day shy of pre-pandemic levels, the agency added.
But despite extended and deepened production cuts by the Organization of the Petroleum Exporting Countries and its allies and predictions of a supply shortfall in some corners of the market, "oil inventories still look ample compared with historical levels despite a steady decline from a massive overhang that piled up during the second quarter of 2020," the Paris-based organization said.
By the end of January, inventories in the wealthy group of nations known as the Organization for Economic Co-operation and Development were still 110 million barrels above their level a year ago at the onset of the global coronavirus pandemic.
Oil prices wavered early Wednesday, after slipping Tuesday as concerns about European suspensions of AstraZeneca's coronavirus vaccine took the shine off moderately bullish inventory data from the American Petroleum Institute. Brent crude, the global benchmark, was last down 0.1% at $68.31 a barrel and West Texas Intermediate futures--the U.S. benchmark--was flat at $64.78 a barrel. Both benchmarks are still up more than 30% so far this year.
That rally has arrived thanks to increasing investor confidence that the effects of the coronavirus pandemic that crippled global oil demand last spring will continue to taper during this year. Vaccination rollouts continue and forecasts for economic growth and oil consumption are increasing.
But oil's rally has more to do with the "hefty amount of spare production capacity [that] has built up as a result of OPEC+ supply curbs" rather than "a looming supply shortfall," the IEA said.
The alliance is still withholding around 8 million barrels a day from the market and much of that "could be brought on to the market in short order," the agency said, but for now "there is more than enough oil in tanks and under the ground to keep global oil markets adequately supplied."
Outside of the OPEC+ alliance, supply from the U.S. is expected to remain subdued as well. While U.S. production has steadily improved since the worst of the oil-market crash last year, the icy blast that roiled the Texas power market also caused a 1.9 million barrel a day drop in February, pushing the IEA's forecast for 2021 production lower.
Write to David Hodari at david.hodari@wsj.com
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Oil glut remains despite demand gains, says IEA - MarketWatch
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