Surplus oil inventories in developed nations are now just a small fraction of the levels seen when demand collapsed last year, with output cuts by OPEC and its allies draining the excess, the IEA said on Wednesday. Still, the agency sees a temporary setback for global consumption as infections rock India, before the recovery resumes later in the year.
“Bloated world oil inventories that built up during last year’s Covid-19 demand shock have returned to more normal levels,” the IEA said in its monthly report. “But India’s Covid crisis is a reminder that the outlook for oil demand is mired in uncertainty. Until the pandemic is brought under control, market volatility is likely to persist.”
Oil markets have extended their recovery this year as fuel consumption roars back in China and the U.S., buoying international crude prices to about $69 a barrel in London.
In March, oil inventories in developed nations stood just 36.9 million barrels above the average level from 2015 to 2019, down from a surplus of about 250 million barrels last summer, the IEA said. Compared with the average for 2016 to 2020, the excess is just 1.7 million barrels, less than the capacity of a single supertanker.
Demand is suffering a temporary setback, with forecasts for Indian consumption in the second quarter cut by 630,000 barrels a day as a brutal wave of infections spreads across the country. Estimates for global demand in 2021 were trimmed by 270,000 barrels a day, to 96.4 million a day. The Paris-based IEA advises most major economies.
“The outlook for demand remains fragile,” Toril Bosoni, head of the IEA’s oil markets and industry division, said in a Bloomberg television interview. Still, the agency is “expecting a very strong recovery in demand growth in the second half of the year.”
Global consumption is on track for a rebound of 5.4 million barrels a day, or 6%, this year after 2020’s unprecedented slump. The recovery will gather momentum in the second half, causing stockpiles to dwindle even further.
That will present the 23-nation OPEC+ alliance led by Saudi Arabia and Russia with a choice: restore some more of the production they’ve halted, or continue to tighten global markets.
The Organization of Petroleum Exporting Countries and its partners are in the process of reviving about 2 million barrels of daily output in three monthly installments. When the increase is completed in July, the IEA’s data indicates that demand for the cartel’s crude will still be higher than its production.
OPEC’s 13 members pumped about 25 million barrels a day last month, while demand for their supply in the third quarter is projected at 28.1 million barrels, according to the IEA report.
“Under the current OPEC+ production scenario, supplies won’t rise fast enough to keep pace with the expected demand recovery,” the agency said. “The widening supply and demand gap paves the way for a further easing of OPEC+ supply cuts or even sharper stock draws.”