Covid-19 has had an unprecedented impact on global economy; oil market fundamentals have been shaken to the core in 2020; global demand witnessed the worst decline; and prices partially depicted that in late April 2020 amid brimming global crude oil supplies.
However, some stability has been seen in the oil market in the last two months. Spot crude oil prices have continued to rise in May and June 2020 as inventories have gradually come down. While the supply side has been subject to production cuts and a lot of scrutiny, the demand side of the oil market has remained in limbo due to the uncertainties and fears around coronavirus pandemic.
The recent Short-Term Energy Outlook by EIA earlier this month lifted hopes for crude oil demand in 2021; though the organization expects the high inventory levels and surplus crude oil production capacity to limit upward price pressures in the coming few months, it expects inventories to decline by 3.3 million bpd in 2H-2020, and predicts the trend continuing in 2021 at 1.1 million bpd, which will increase the upward price pressures.
And now the recently Monthly Oil Market Report for July 2020 by OPEC shows that the oil market would tighten in 2H2020. It has revised up the global oil demand in 2020 by 0.1 mb/d from last month’s assessment - decline of around 8.9 mb/d. The revision came in due to better than expected data from OECD region. The global organization expects world oil demand to rebound by 7 million barrels a day, or 7.7 percent in 2021 to 97.72 million a day. However, the catch is that this growth is still lower than what was witnessed in 2018 or 2019, and a lot of the projected demand will depend on how the pandemic pans out in 2021. so there is a big ‘if’ involved here.
Good news is for the OPEC members however, as the OPEC has forecast that the demand for its crude will grow by around 25 percent. year-on-year – higher than the level in 2019 – due to recovery in global oil demand and limited production growth for US in 2021.