OPEC takes the clippers to its 2021 oil demand forecast
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Oil pundits looking for a quick rebound are in for some disappointment as the COVID-19 pandemic continues to impact on demand.
World oil demand in 2021 is expected to decline by 9.77 million barrels per day (MMbpd) according to OPEC in this month’s ‘Monthly Oil Market Report’, a slightly larger decline from last month’s estimate of 9.75MMbpd.
It said that better than expected growth in China was offset by lower transportation fuel demand in the US and Europe.
OPEC has also reduced its forecast of demand growth in 2021 by 350,000bpd to 5.95MMbpd.
This was despite OPEC noting that a 4.2 per cent year-on-year contraction in global economic growth for 2020, a slight improvement from its previous forecast of a 4.3 per cent contraction.
OPEC’s forecast was backed up by the International Energy Agency, which blamed continued low demand for jet fuel for 80 per cent of next year’s 3.1MMbpd gap in oil demand compared to pre-pandemic levels.
In its monthly ‘Oil Market Report’, the IEA also reduced its 2021 oil demand outlook by a further 170,000bpd to 91.2MMbpd.
The IEA noted that while the start of COVID-19 vaccinations had driven oil price growth, it will be several months before enough people have been vaccinated to make an impact on oil demand.
The West Texas Intermediate crude benchmark is currently commanding $US47.59 per barrel; the broader Brent benchmark is at $US50.68 per barrel.
But there might be some light on the horizon.
Goldman Sachs believes that underinvestment in oil and gas exploration and production will put upward pressure on oil price.
Speaking to CNBC, its commodities chief Jeffrey Currie said the underinvestment may stimulate short-term demand for oil as infrastructure for renewable energy is being built.
However, even this bit of good news comes with a caveat. Once the green infrastructure is in place, it is expected to have a negative impact on oil demand and likely prices.