The IEA warns global oil demand will shrink further in both 2020 and 2021, held up by gloomy air travel

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  • The International Energy Agency lowered its global oil demand forecasts for 2020 and 2021 on expectations of a further downturn in air travel.
  • Although there has been a recovery in business and industrial activity, that did not deter the agency from downgrading its estimates.
  • The Paris-based agency expects global oil demand to fall by 8.1 million barrels a day year-on-year to 91.1 million barrels a day this year, driven by lower demand for jet fuel.
  • For 2021, the agency revised down its prior estimate by 240,000 barrels a day to 97.1 million barrels a day, again reflecting weakness in the aviation sector. 
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The International Energy Agency cut its forecast for global oil demand for the first time in months on Thursday, citing the dramatic decline in demand for jet fuel, as the COVID-19 pandemic continues to impact air travel.

In its closely-watched monthly report, the Paris-based agency warned that reduced air travel would cut 2020 oil demand by an annual 8.1 million barrels per day to 91.1 million barrels per day, marking a decline of 140,000 barrels per day from its previous forecast a month ago. 

For 2021, the agency cut its global demand estimate by 240,000 barrels a day to 97.1 million barrels a day.   

“Jet fuel demand remains the major source of weakness,” the IEA said in its August report.

The IEA, which advises western governments on energy policy, noted there had been a recovery in business and industrial activity, as well as e-commerce, which has been reflected by a strong pick-up in trucking activity. 

But that didn’t prevent the IEA from downgrading its oil forecast for both this year and the next.

“With few signs that the picture will improve significantly soon, we have downgraded our estimate for global jet fuel and kerosene demand,” IEA said, slashing its consumption forecasts by 39% to 4.8 million barrels per day. For 2021, the IEA expects an increase of just 1 million barrels per day in jet fuel demand.

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The IEA said new infections are interrupting mobility, and pointed to the easing in lockdown restrictions that has fueled the resurgence of COVID-19 cases around the world.

Mobility data shows that the recovery has plateaued out in many regions, but is still on an upward trend in Europe, the report said. As a result, demand for road transport fuels was stronger in the first half of the year. However, the IEA warned the outlook for the second half is far less clear. 

The IEA said oil demand exceeded supply in June – ordinarily a bullish factor – but uncertainty related to COVID-19 and the possibility of increased output by top producers meant the market’s rebalancing would be “delicate.” 

OPEC also cut its outlook for global oil demand in its monthly market report published on Wednesday. The producer group, which accounts for roughly a third of total world oil output, expects demand growth to drop by 9.1 million barrels per day this year, marking a decline of 100,000 barrels per day from its last forecast.

Oil production rose in the US, Canada, and Brazil, while the OPEC+ countries, which agreed to jointly curtail output for several months this year, eased their self-imposed restrictions, the IEA said.

“However, if (OPEC+) countries that have not hitherto complied with their quotas cut back by enough to bring them into compliance, global oil supply would not necessarily increase significantly.”

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