Oil Loses Ground As IEA Cuts Its Oil Demand ForecastOil declines below $42.50 as traders evaluate IEA’s decision to cut its oil demand forecasts for 2020 and 2021.
Oil Video 13.08.20.
IEA Lowers Its Oil Demand Forecast
Yesterday, OPEC revised its oil demand growth forecast from -8.9 million bpd to -9.1 million bpd.
Today, International Energy Agency has followed OPEC’s steps and cut its oil demand outlook to 91.9 million barrels per day (bpd) in 2020. IEA stated that the key reasons for the revision were the weakness in the aviation sector and stalling mobility due to the high number of coronavirus cases.
Interestingly, IEA also cut its demand forecast for 2021 as it expects that air travel will be recovering slowly.
It will be interesting to see whether the market will ultimately see the lagging demand for air travel as a key catalyst that may prevent oil from rising to higher levels.
It is already clear that demand for air trasportation will stay under huge pressure until various vaccines are developed and administered to a significant proportion of the world’s population.
This will likely not happen until the second half of the next year so I’d fully agree with IEA predictions. At the same time, it looks that current production cuts from OPEC+ countries and the decline in U.S. oil production will help lower inventory levels in the second half of this year, providing support to oil prices.
Crude Inventory Draw Fails To Help Oil Gain More Upside Momentum
While yesterday’s EIA Weekly Petroleum Status Report, which showed that U.S. crude inventories declined by 4.5 million barrels, has helped oil gain some ground, it did not lead to major buying activity.
Oil is slowly heading to higher levels but this process takes a lot of time. At this point, it looks like the main reason for the lack of upside momentum is the fear about the potential second wave of the virus which would hurt the demand for oil.
As noted above, OPEC and IEA have already cut their demand estimates for 2020 due to continued challenges on the coronavirus front. As there are no major improvements on the virus front and any mass vaccinations will likely take place only in 2021, traders are wary of taking long-term bets at current price levels.
The current trading pattern, when oil slowly grinds to higher levels thanks to inventory draws and sometimes pulls back on virus concerns, has the potential to continue until the end of summer.
For a look at all of today’s economic events, check out our economic calendar.