Vaccine rollouts are brightening the outlook for global oil demand, the International Energy Agency (IEA) said on Wednesday, though rising cases in some major oil-consuming countries show a recovery may be fragile.
“The massive overhang in global oil inventories that built up during last year’s Covid-19 demand shock is being worked off, vaccine campaigns are gathering pace and the global economy appears to be on a better footing,” the intergovernmental agency said in its monthly report.
Citing rising cases in Europe, Brazil, and the US, the Paris-based watchdog said it remained concerned about new waves of the virus derailing progress.
Still, the IEA predicted global oil demand and supply were set to re-balance in the second half of the year and that producers may then need to pump 2 million barrels per day more to meet the expected demand.
OPEC and allies like Russia, a grouping known as OPEC+, would likely prove capable of tailoring its output to demand whether the virus is tamed or not, the IEA added.
“The bloc’s monthly calibration of supply may give it the flexibility to meet incremental demand by ramping up swiftly or adjusting output lower should the demand recovery fail to keep pace.”
The IEA said commercial oil stored in OECD countries fell for a seventh consecutive month in February, signaling a rise in demand and increased imports in the near future.
Less developed countries faced a steeper climb out of the demand crater created by COVID-19, the IEA warned, as the differences between countries with prompt access to the vaccine and those without become more pronounced.
“Some emerging countries with lower access are in a more difficult situation, with likely new COVID waves slowing economic activity and mobility,” the IEA added.
“The situation is currently deteriorating sharply in some large non-OECD oil consumers (Brazil, Iran and India).”
The global recovery from the pandemic is looking uneven, however. The US and China are seeing higher rates of fuel consumption, but India is renewing partial lockdowns amid record virus cases and a shortage of vaccines. South Korea and Japan are also seeing rising infections.
"Continuing setbacks on vaccine rollouts and global cases nearing January's peak is likely to hold a firm cap on crude's ascent in the short term," said Vandana Hari, energy analyst at Vanda Insights.
A weakening US dollar also "provided a mild upward push" in recent days but there has been "no major bullish impetus to free crude from its narrow trading range," she added.