The Covid-19 pandemic’s crushing impact to energy demand and prices has led the Organization of the Petroleum Exporting Countries, aka OPEC, to again reduce its forecast for oil into 2020.

Consensus WTI Sept. 15

The International Energy Agency (IEA) on Tuesday also reduced for the second consecutive month its outlook for oil demand. IEA also warned that Covid-19 may play havoc with consumption into 2021. 

In its Monthly Oil Market Report (MOMR) issued on Monday, OPEC reduced its 2020 crude forecast by another 0.7 million b/d from an August forecast. It now expects to see 2020 crude demand of 22.6 million, around 6.7 million b/d lower than in 2019. 

Demand for OPEC crude in 2021 was revised down by 1.1 million b/d from last month’s forecast to 22.6 million b/d, which would be around 5.5 million b/d higher than this year’s outlook.

“The global economy has witnessed unprecedented upheaval in 2020,” said the MOMR researchers. “After a tentative pick-up at the start of the year, the emergence of the Covid-19 pandemic led to broad-based economic dislocation across the world and in all sectors…This is reflected in the sharp decline in global economic activities, which in the first half of 2020  heavily impacted the energy market, with huge demand drops and crude oil prices hitting historical lows in April.”

Since mid-May, however, global lockdowns have gradually eased. 

“Curbed demand and forced first half 2020 savings, in combination with exceptional fiscal and monetary stimulus, are now supporting a strong second half 2020 global economic recovery, although this will not compensate for the large decline” in the first six months.

China is forecast to be the “only major economy showing positive growth this year, although the recovery in the U.S. and Euro-zone appears to be gaining traction,” the MOMR researchers said. 

While the latest outlook “considers no further deterioration of the Covid-19 situation, a lasting solution to the pandemic — natural end or a vaccine —  will provide upside to the current forecast.”

Liquids production from non-OPEC countries was revised higher for 2020 by 360,000 b/d because of a “higher-than-expected recovery in the U.S. in June, which added 1.0 million b/d month/month and now contracting by 2.7 million b/d, year/year,” according to the MOMR. 

“A production recovery has already begun in the U.S., Canada and Latin America in 3Q2020, although Hurricane Laura partially impacted production in the US Gulf of Mexico (GOM). The main declines in 2020 are expected to be in the U.S. with 1.0 million b/d, Russia with 1.1 million b/d and Canada.”

OPEC adjusted higher the non-OPEC liquids output forecast for 2021 by 371,000 b/d. It now is expected to climb by 1.0 million b/d. “The U.S. with 0.4 million b/d, Canada, Brazil and Norway will be the main drivers of growth” in liquids next year, according to the MOMR. 

OPEC expects its natural gas liquids to decline by 0.1 million b/d in 2020 year/year. The preliminary 2021 forecast indicates growth of 0.1 million b/d, averaging 5.2 million b/d. Crude production in August increased month/month by 0.76 million b/d to average 24.05 million b/d, OPEC noted, according to secondary sources. 

OPEC also revised down its forecast for global economic growth to minus 4.1% for 2020 from its August forecast of minus 4.0%  “amid a further slowing momentum in especially emerging and developing economies.”

Gross domestic product growth in 2021 “remains unchanged at 4.7%,” the MOMR said. “The U.S. is revised up slightly and forecast to contract by 5.1% in 2020, followed by growth of 4.1% in 2021.”

‘Fragile’ Outlook

IEA, the global energy watchdog, in its Oil Market Report (OMR) said a resurgence of Covid-19 cases in many countries, lockdown measures, continued teleworking and the weak aviation sector have led to a revision to demand for the second half of 2020.

Global oil demand was reduced for 3Q2020 by 0.1 million b/d, and for 4Q2020, consumption was cut by 0.6 million b/d.

“The uncertainty created by Covid-19 shows little sign of abating,” IEA researchers said. “In Europe, the number of new cases has risen as the holiday season ends, though the rate of hospitalisations and deaths is lower than seen earlier this year. Case numbers in the United States are falling, and the situation seems to be improving in Japan and Korea.

“However, in various places, the situation is worrying and we are seeing localized lockdowns,” said researchers. “These developments weigh heavily on economic activity and lead to lower expectations for a recovery in energy demand. Home working reduces demand, but fear of using public transport is leading many workers to use personal vehicles. Factoring these unprecedented developments into conventional analysis is very challenging, to say the least.

Global oil demand from January to July was an estimated 10.5 million b/d below last year’s level, based on new IEA data. As national lockdowns eased there was an initial recovery in demand led by gasoline, “but the curve has flattened out and it is becoming increasingly apparent that Covid-19 will stay with us for some time.” 

IEA has reduced its estimate for global oil demand growth in the second half of this year by 0.4 million b/d. For 2020, the decline in demand versus 2019 is estimated at 8.4 million b/d, slightly deeper than IEA had forecast in August. 

“At 91.7 million b/d, demand has returned to its level in 2013,” said IEA researchers. “With global output increasing overall, plus our downwardly revised demand data, we now calculate implied stock draws in the second half of the year at about 3.4 million b/d, nearly 1 million b/d less than estimated in last month’s report.”

With winter approaching in the Northern Hemisphere, said IEA researchers, “we will enter uncharted territory regarding the virulence of Covid-19. In last month’s report, we said that the market was in a state of ‘delicate re-balancing.’ One month later, the outlook appears even more fragile.”