The International Energy Agency published its latest outlook for the oil market last week, pushing its quarterly forecast of the output at the end of 2021 for the first time. He did not think that the demand will have fully recovered by then. In the last quarter of the next year, he predicted that global oil demand will still be running about 2 million barrels per day below pre-pandemic levels, and more than 4% below where it can reasonably expect that, in the absence of the crisis.
That may not seem like much, considering the depth from which we are emerging, but it is going to have big implications for the oil markets and the oil industry.
A look at the short-term outlook helps to explain why the recovery will take time. While expectations of demand destruction in the area are beginning to look a little less daunting than they did a month ago that these prohibitions are relaxed, it is clearly the easy part. The last 10% or more of the loss of the request is more difficult to recover.
Yes, the IEA has revised its second quarter, global oil demand estimate by which, in normal times, would be a huge 2.1 million barrels per day, but it still sees a one-year decline of nearly 18 million barrels, or 18%. This is the biggest drop in oil demand on record by a wide margin, eclipsing the 3.4% drop during the worst quarter of the 2008-2009 financial crisis.
And even more telling, the recovery slows down considerably from the third quarter of the front.
The return of the application to date, combined with production cuts by both OPEC+ and the producers outside the group — including those of the UNITED states has probably brought global oil supply and demand back in balance, and inventory will begin to be drawn down in the second half of the year. But the quantity stored of oil that must be burned through before, there’s room for the producers to pump more is huge. Enough of the black material disappeared into the storage tanks, caverns, caves and ships over the last six months to drive all heavy trucks in the UNITED states around the world five times — if it could be turned into diesel fuel.
By the end of this month, global stocks are expected to be about 2.7 billion barrels above where they were at the end of 2013. It is nearly four times the surplus seen after the first boom of shale at the beginning of 2017, when the oil price collapsed to $25 a barrel. This is an important point of comparison because it is then that Saudi Arabia and others have decided that the Organization of the Petroleum Exporting Countries would not, or could not, manage the oil market on their own — and of the whole of OPEC+ group has been created, bringing in more countries, including Russia, to the table.
Their cooperation has been far from smooth, but worrying for the group of producers, their a bit late actions during the pandemic have been such a success that the price of WTI crude is back to a level that will encourage Us shale oil producers to start pumping again. Although this may not yet be high enough for obtaining the drilling of new wells, it is to allow them to reactivate some of those they were closed down during the depth of the pandemic and begin the hydraulic fracturing some of those they had already drilled but not completed.
No wonder, then, that Saudi Arabia pressures of those of the OPEC+ members who do not meet their output target reduction May offset with deeper cuts in the months to come. He renewed the pressure when the monitoring group of the committee met last week and will need to keep the police services which deal with many more months to drain the tanks full of oil.
This column does not necessarily reflect the views of the drafting committee or of Bloomberg LP and its owners.
Julian Lee, an oil strategist for Bloomberg. Previously, he worked as a senior analyst at the Centre for Global Energy Studies.
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