Global oil demand growth will decelerate due to a new wave of Covid-19 infections and renewed lockdowns, dampening hopes for a strong rebound in the near term, according to the Institute of International Finance (IIF).
It is unlikely that global demand for oil will reach the 100 million barrels per day level seen in 2019 before 2023, the IIF said in its Oil Market: Expanding supply, fragile demand recovery report.
"The decline in the elasticity of global demand since the mid-1990s, with respect to GDP [gross domestic product], will accelerate," Garbis Iradian, IIF's chief economist for the Middle East and North Africa, said. "Changes in behaviour [including working-from-home and cuts in business and vacation travel] due to the pandemic and the adoption of policies by major economies to support a low-carbon future will reduce further the growth in global demand for oil."
The Opec+ alliance led by Saudi Arabia and Russia plans to add two million barrels per day back to the market over the next three months, with the view to restoring a quarter of the production cuts agreed a year ago in response to the pandemic.
Brent, the international marker, settled 3.38 per cent higher at $64.86 per barrel on Thursday. West Texas Intermediate, the US gauge, closed 3.87 per cent higher at $61.45 per barrel. Murban, the Abu Dhabi benchmark, closed 3.5 per cent higher at $63.90. The oil markets were closed on Friday.
While the IIF does not see a near-term recovery in global oil demand to pre-pandemic levels, it does expect global oil demand to rise by 5.4 million bpd in 2021 to 96.8 million bpd after falling by 8.5 million bpd in 2020, on the back of the pandemic relief measures.
"Fiscal stimulus in advanced economies, particularly in the US, and the progress of coronavirus vaccinations should support the strong global economic recovery and global oil demand," Mr Iradian said.
In advanced economies, oil consumption is expected to increase by 2.4 million bpd, driven mainly by the US. In emerging and developing economies, oil demand is projected to rise 3 million bpd, driven by China and India.
The IIF said it is maintaining its oil price forecast at $60 per barrel for 2021 and sees global oil inventories rising, supported by the gradual recovery in oil supply.
"While rising oil prices continue to reflect gradual recovery in global demand, they were also supported by temporary supply limitations," Mr Iradian said.
These limitations included the recent Suez Canal blockage, which backed up shipments of about 13 million barrels of crude oil and petroleum products at the entrances of the canal.
The Washington-based institute sees global oil supply exceeding demand and oil prices moderating for the rest of 2021.