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James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures edged lower on Thursday after the International Energy Agency (IEA) cut its 2020 oil demand forecast, warning that reduced air travel due to the coronavirus pandemic would lower global demand this year by 8.1 million barrels per day (bpd), Reuters reported.

IEA Slashes 2020 Outlook…Blames Weak Jet Fuel Demand

The Paris-based IEA slashed its 2020 outlook by 140,000 bpd to 91.9 million bpd, its first downgrade in several months.

“Jet fuel demand remains the major source of weakness,” the IEA said in its monthly report.

“In April the number of aviation kilometres travelled was nearly 80% down on last year and in July the deficit was still 67%…The aviation and road transport sectors, both essential components of oil consumption, are continuing to struggle.”

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IEA Notes Some Recovery

Damage to demand wrought by less cross-border travel was mitigated somewhat by recovery in industry and e-commerce that was supporting trucking, but the IEA still predicted 2021 oil consumption would be slightly lower than in 2019.

Data cited by the IEA indicated that mobility in many regions had reached a plateau but was increasing in Europe, though a rise in COVID-19 cases caused the agency to cut demand estimates for gasoline.

IEA Says Re-Balancing Oil Markets Will Be “Delicate”

“Our balances show that in June demand exceeded supply, and for the rest of the year there is an implied stock draw,” the IEA said.

“However, ongoing uncertainty around demand caused by COVID-19 and the possibility of higher output means that the oil market’s re-balancing remains delicate.”

Oil production was recovering in the United States, Canada and Brazil at the same time producers from the Organization of the Petroleum Exporting Countries and allies such as Russia, a group dubbed OPEC+, were easing their output cuts, the IEA said.

“However, if countries that have not hitherto complied with their quotas cut back by enough to bring them into compliance, global oil supply would not necessarily increase significantly,” the IEA added, citing the United Arab Emirates and Iraq.

The IEA also said global oil supply appeared set to fall by 7.1 million barrels per day in 2020 and rise by 1.6 million barrels per day next year.

It added that oil supply rose by 2.5 million barrels per day to reach 90 million barrels per day in July, after OPEC kingpin Saudi Arabia ended its voluntary production cut, the United Arab Emirates exceeded its OPEC+ target and U.S. production started to recover.

For a look at all of today’s economic events, check out our economic calendar.

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