IEA downgrades oil demand forecast, but warns of supply shortages

London (Quantum Commodity Intelligence) - The resurgence of Covid-19 has delayed the recovery in worldwide oil demand, but a second half-year surge will leave supplies tight unless OPEC turns the spigot again, says the International Energy Agency (IEA) in the May edition of its monthly Oil Market Report.

Global oil demand is now forecast to rise 5.4 million b/d this year, down 270,000 b/d from the IEA's forecast in April.

India's Covid-19 crisis will wipe 630,000 b/d of oil demand in the country in the second quarter.

Europe and OECD counties in North and South America have seen their first-quarter demand downgraded by 320,000 and 515,000 b/d respectively in the first quarter.

But the IEA's forecast for global oil demand growth in the second half of the year stayed the same on expectations that vaccinations continue to roll out and the Covid-19 pandemic is tamed.

The OPEC+ agreement has also already squeezed out the overhang of oil stocks on the world markets and the alliance will need to increase supplies in the second half of the year to keep up with demand.

"Under the current OPEC+ production scenario, supplies won't rise fast enough to keep pace with the expected demand recovery," the IEA warns.

"As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million b/d in the first quarter to 99.6 million b/d by year-end."

"The widening supply and demand gap paves the way for a further easing of OPEC+ supply cuts or even sharper stock draws."

During March, OECD industry oil stocks were drawn by 25 million barrels to 2,951 million barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and 36.9 million barrels above the five-year average between 2015 and 2019, the IEA points out.

Stocks continued to fall in April, and although the market looks oversupplied in May, draws are expected to resume in June, the Paris-based agency adds.

After a 7.4 million b/d decline in 2020, global refinery intake is expected to increase by 4 million b/d in 2021.