As uncertainty continues to rule the market, oil price volatility will remain, and outlooks will err on the side of optimistic caution with no real action.
The two key energy organisations both tightened their forecast this week and in Friday trading, Brent crude was priced below US$45 with West Texas Intermediate (WTI) close to US$42 a barrel.
What the global oil recovery will look like and when will it happen appears to be the million-dollar question.
No-one can be sure, leading both the International Energy Agency and the Organisation of the Petroleum Exporting Countries to trim forecasts for the rest of the year, in their monthly oil reports.
Global supply is plentiful, but demand fundamentals are still out of balance.
The world continues to cut back on travel and activity, so oil demand is suffering as the Covid-19 fallout continues.
The IEF forecasts that we will be struggling to consume around 92 million barrels a day for 2020 after the agency lowered its estimates this week.
That is more than 8 million barrels lower demand than last year with little and slow recovery in sight. The situation is impacted by the return of 2.5 million barrels when the OPEC+ voluntary production adjustment ended, increased US oil production and low demand.
OPEC issued its monthly oil report this week citing “lower economic activity levels,” particularly in some non-OECD countries as a key reason to keep oil demand for 2020 around 90.6 million barrels a day.
While the key focus will be survival for 2020, OPEC sees an increase of 7 million barrels a day in terms of demand for 2021, depending on an assumption “that Covid-19 will largely be contained globally with no further disruptions to the global economy.”
2020 was to be the year where global oil demand should have risen above 100 million barrels a day.
OPEC estimates that the world will consume 90.6 million barrels a day in 2020, rising to 97.6 in 2021.
Producers watching developments
Oil producers will be watching developments on the global economy and while the stock market is going through a better recovery, oil demand growth is not moving as quickly as other markets.
The dollar is low, making oil cheaper for countries holding foreign currencies, a situation where oil demand should grow among many countries for storage and inventory builds.
OECD industry stocks continue to build as there is plenty of supply on the market. In the US, commercial stocks fell in July by around 18 million barrels.
The CEO of CMarkits, Yousef Alshammari, said he expects American “commercial inventories to return below 450 million barrels” by the second half of 2021.
China’s oil demand is growing in the last couple of months, according to the IEA report with 750,000 barrels a day added in June.
The IEA noted that road transport fuels in Europe saw a pickup in the first half of this year. Global refinery intakes are also showing signs of improvement.
Crude is still under pressure and “jet fuel demand remains the main source of weakness,” as the number of aviation kilometres travelled was down 80% in April and just short of 70% in July.
The OPEC+ joint ministerial monitoring committee meets next week as scheduled in their attempt to measure market activity every month.
Last month, the production adjustment eased with the current number now keeping 7.7 million barrels a day off the market until December when OPEC and friends will have their next full ministerial meeting, hopefully in person in Vienna.
While the oil market has remained stable and range bound in the forties, oil producers would prefer a stronger price.
No action is expected from OPEC and friends until the end of the year and in the meantime, investors and producers remain cautious as the world works towards Covid recovery.