Oil Rallies On Improved Outlook For Oil Demand

Oil Video 16.06.20.

IEA Improves Its Forecast For Oil Demand In 2020

Oil is gaining ground today amid optimism about Fed’s decision to start buying individual corporate bonds and better-than-expected U.S. Retail Sales report.

Meanwhile, oil has its own positive catalysts – International Energy Agency has improved its oil demand outlook by 0.5 million barrels per day (bpd) to 91.7 million bpd.

IEA stated that the reason for the change was the strength of oil demand recovery in China and India which are major oil consumers.

As a result, IEA expects that oil demand will decline by 8.1 million bpd in 2020 before rebounding by 5.7 million bpd in 2021. The problems on the aviation front will not allow oil demand to return to pre-pandemic levels before 2022.

IEA notes that global oil supply decreased by 11.8 million bpd in May thanks to the OPEC+ deal. IEA believes that oil demand will decline by 7.2 million bpd for the whole 2020 and rebound by just 1.7 million bpd in 2021.

Such a scenario will be bullish for oil as demand is set to increase by 5.7 million bpd in 2021 compared to the increase in supply of 1.7 million bpd. If this scenario is realized in practice, the oil market will work through the excessive inventories and reach balance within a reasonable timeframe.

Inventories In Spotlight Again

Today, oil traders will digest the new API Crude Oil Stock Change report. The market will be closely watching whether inventories decreased after the previous surprising build.

This report will be followed by EIA Weekly Petroleum Status report on Wednesday which will also provide a look at the inventory situation. Currently, analysts expect that crude inventories increased by 0.5 million barrels but I believe that the market would like to see an inventory draw.

Another important number to keep an eye on is the U.S. domestic oil production, which has already decreased to 11.1 million bpd. Further reduction in the domestic production is necessary to start working through excessive inventories so the amount of domestic oil production may be a bigger catalyst for the market compared to oil inventory status.

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