Global oil demand shows ‘clear signs of improvement’
OPEC+ will realise planned production increases in July
Vaccination rates and the overall dynamics of oil demand allow OPEC+ to proceed with its plans for oil output hikes in July. However, the alliance does not plan to release too many barrels to the market, and some analysts believe that this may lead to overheating.
OPEC and its allies will follow through on plans to hike crude production through July, says S&P Global Platts adding that ministers are unsure of further moves, as they don’t know how the market will shape up in two months. The coalition will gather again on 24 June and then hold an expanded meeting with Russia and nine other partners on 1 July to decide on production quotas for August and beyond. “We know that the situation prevailing as of today allows us to proceed with what we were planning to do in July,” said Saudi Minister of Energy Prince Abdulaziz bin Salman. However, he noted that the alliance has reinstated monthly meetings in a bid to “give the market assurance and comfort that we will be attentive and monitor the situation”.
The Saudi minister shrugged off warnings that the market may overtighten without more OPEC+ supply, or that elevated prices could unleash another wave of US shale production, but consuming countries are already sounding the alarm on the market potentially overheating. This week, ICE Brent has broken through the $70-per-barrel ceiling, which is a more than two-year high.
The International Energy Agency (IEA) considers that global oil prices will face further upward pressure unless oil-producing countries release more crude in the coming months. “Over the next six months, I see very clearly that there is a strong recovery of oil demand in the US, China, Europe and elsewhere,” said Executive Director of the IEA Fatih Birol on 1 June adding that “we may see a wider gap between supply and demand” if the alliance sticks to its current policy.
The IEA expects a major oil demand rebound of around 5,4 million bpd in 2021 and warns that under the coalition’s current production plans, crude supply “won’t rise fast enough to keep pace with the expected demand recovery”. OPEC’s latest monthly oil market report provides an even more optimistic forecast of 6-million-bpd demand growth in 2021 with a supply deficit of 1,4 million bpd. Platts Analytics estimates that global oil demand will grow by 5,1 million bpd in June and July, while supply will remain in a deficit of 1,5 million bpd.
Such bullish estimates are fuelled by the global oil demand picture, which has “shown clear signs of improvement”, especially in the US and China, according to Prince Abdulaziz bin Salman. The Saudi official, as well as his Russian counterpart Alexander Novak, praised the global rollout of coronavirus vaccines, which have now totalled 1,8 billion doses administered around the world. This active rollout reduces risks of a new wave and helps restore mobility all around the globe, said Novak.