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The International Energy Agency (IEA) has cut 550,000 barrels a day from its forecast for global oil use for the rest of this year, as several major oil-importing countries imposed new restrictions and lockdowns in attempts to control the COVID virus’s Delta variant, the Financial Times reported.
The world will burn an average of 96.2 million barrels of oil daily for the rest of this year and add another 3.2 million next year, the IEA now forecasts.
Next year’s predicted 99.4 million barrels of daily consumption will return the world’s oil use close to pre-2020 levels, the FT noted.
“Growth for the second half of 2021 has been downgraded sharply as new COVID restrictions imposed in several major oil-consuming countries, particularly in Asia, look set to reduce mobility and oil use,” the agency said in a statement announcing its revised outlook.
After adding 3.8 million daily barrels in June, the global economy shed 120,000 barrels a day of demand in July, it found, “as the rapid spread of the Delta variant undermined deliveries in China, Indonesia, and other parts of Asia.”
China alone lost 100,000 barrels of daily demand in July, the IEA said, falling to 9.7 million, compared to 12.1 million in July 2020.
Global oil prices have slid 6 percent this month, the FT noted.
As the IEA cut its forecast, OPEC’s long-awaited production increase of 400,000 barrels a day took effect this month and is scheduled to continue, month by month, until the cartel is producing as much oil as it did before the 2020 crisis. (See “Saudis to Boost Oil Production as Prices Strengthen,” Trends Journal, 23 February, 2021.)
If OPEC fulfills that plan, and non-OPEC producers also pump more to cash in on $70 oil, the world could once again see an oil glut next year, the IEA warned.
Producing countries outside of OPEC’s influence already have boosted production by 600,000 barrels a day so far this year; the IEA expects that figure to rise to 1.7 million by January.
With U.S. gasoline prices pushing past $3 a gallon, the Biden administration has called on OPEC to boost production further to tamp down prices in aid of the global economic recovery.
However, “we imagine there will be a lot of reluctance from the Saudis and the broader [OPEC] group to increase output further, particularly given continued uncertainty over the spread of the Delta variant,” Warren Patterson, ING’s chief commodities strategist, told the FT.
TRENDPOST: A looming oil glut and the possibility of falling prices is yet another sign that the economic recovery may stall. Yet, stock prices continue to push higher, another sign that equity markets are detached from economic realities.
When markets disconnect from fundamental realities, their movements become unpredictable, turning them from investment venues into gambling dens.
TREND FORECAST: If oil prices fall below $65 and remain there, the likelihood grows that OPEC+ will cut back production to raise prices, a move that would spur inflation and cast additional doubt over the world’s economic recovery.