Picture used for illustrative purpose.
Opec on Tuesday raised its forecast for growth in world oil demand this year on expectations the pandemic will subside, providing help for the group and its allies in their efforts to support the market.
Demand will rise by 5.95 million barrels per day (bpd) in 2021, or 6.6%, the Organisation of the Petroleum Exporting Countries forecast in its monthly report. That is up 70,000 bpd from last month.
“As the spread and intensity of the COVID-19 pandemic are expected to subside with the ongoing rollout of vaccination programmes, social distancing requirements and travel limitations are likely to be scaled back, offering increased mobility,” Opec said in the report.
The upward revision marks a change of tone from previous months, in which Opec has lowered demand forecasts because of continued lockdowns. A further recovery could bolster the case for Opec and its allies, known as Opec+, to unwind more of last year’s record oil output cuts.
Oil gained further towards $64 a barrel after the report was released on Tuesday. Prices have risen to pre-pandemic highs above $70 this year, boosted by anticipation of economic recovery and Opec+ supply restraint.
Opec made a small upward revision in its 2021 demand projection last month, but it has steadily lowered the forecast from 7 million bpd expected in July 2020.
The group raised its forecast of 2021 world economic growth to 5.4% from 5.1%, assuming the impact of the pandemic is “largely contained” by the beginning of the second half of the year.
“The global economic recovery continues, significantly supported by unprecedented monetary and fiscal stimulus,” Opec said. “The recovery is very much leaning towards the second half of 2021.”
Opec+ agreed on April 1 to ease oil output cuts gradually from May, after the new US administration called on Saudi Arabia to keep energy affordable for consumers.
The report also showed higher Opec oil output already as Iran, exempt from making voluntary cuts because of U.S. sanctions, pumped more in March, driving a 200,000 bpd rise in the group’s output to 25.04 million bpd.
Opec+ cut supply by a record 9.7 million bpd last year to support the market as demand collapsed. Most of those curbs remain in place even after the April 1 decision. Opec+ holds its next policy meeting on April 28.
Rival producers are also boosting supply, although Opec left its forecast of non-Opec output growth in 2021 steady at almost 1 million bpd and still sees US shale output, which often recovers in response to higher prices, declining.
With higher demand and steady non-Opec supply, Opec raised its estimate of global demand for its crude to 27.4 million bpd this year, up 200,000 bpd from last month and allowing for higher average Opec production in 2021.
Oil prices rose on Tuesday after strong Chinese import data but markets broadly shrugged off Middle East tensions which have so far not disrupted oil supply.
Brent crude oil futures were up 61 cents, or 1%, at $63.89 a barrel by 1221 GMT while US crude oil futures gained 53 cents, or 0.9%, to $60.23 a barrel. Both contracts have recorded changes of less than 1% for four straight sessions.
China’s exports grew at a robust pace in March in yet another boost to the nation’s economic recovery as global demand picks up amid progress in worldwide COVID-19 vaccinations, while import growth surged to the highest in four years.
Crude oil imports into China jumped 21% in March from a low base of comparison a year earlier as refiners ramped up operations.
Opec in its monthly report on Tuesday raised its forecast for 2021 oil demand growth by 70,000 to growth of 5.95 million barrels per day (bpd), or 6.6%.
Also supporting prices, US crude oil stockpiles were expected to have fallen last week for a third straight week, while distillate and gasoline inventories likely grew, a preliminary Reuters poll showed on Monday.
Still, US oil output from seven major shale formations is expected to rise for a third straight month, the US Energy Information Administration said on Monday.
“The rise in geopolitical tension will only have a notable bullish impact on oil prices if it is coupled with actual physical supply disruption,” PVM analysts said in a note.
The slow rate of vaccinations in Europe and anticipation of additional supply of oil from Iran in the coming months capped price gains. Further cause for optimism later this year came from “an acceleration in the vaccination rollout, largely in the OECD region” -- although many developed economies’ performance in the first half has proven sluggish.
Convened under the Opec+ alliance, which also includes Russia and others, oil producers decided in April to gradually roll back output cuts initially made to shore up prices.
Oil prices rose more than $1 per barrel on Thursday after Saudi Energy Minister Prince Abdulaziz bin Salman urged caution and vigilance at the beginning of a meeting of Opec ministers and their allies about the future of supply cuts.
Oil prices jumped more than 2% on Friday, hitting their highest in nearly 14 months after Opec and its allies agreed not to increase supply in April as they await a more substantial recovery in demand.
The global oil market is rebalancing after damage to demand wrought by the COVID-19 pandemic was met with curbs on output by producers from the Organization of the Petroleum Exporting Countries (Opec), the group’s president said on Tuesday.
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