IEA warns COVID vaccine unlikely to boost global oil demand

Global oil demand is unlikely to get a significant boost from the roll out of vaccines against COVID-19 until well into 2021, the International Energy Agency (IEA) says, a view that has curbed oil price gains since vaccine progress was announced earlier this week.

In its monthly report, the Paris-based IEA says that it is “far too early to know how and when vaccines will allow normal life to resume. For now, our forecasts do not anticipate a significant impact in the first half of 2021.

“The poor outlook for demand and rising production in some countries ... suggest that the current fundamentals are too weak to offer firm support to prices.”

Brent crude fell by 0.8 percent to £33 a barrel in early London trade, snapping three straight days of gains.

While the IEA report notes that OECD countries had modestly drawn down their crude oil stocks for two months in a row by September, it adds that storage levels are still not far from peaks in May, at the height of the pandemic.

Furthermore, it cites a resurgence of Covid-19 infections in Europe and the United States and renewed lockdown measures for revising down its outlook for global oil demand for 2020 by 400,000 barrels per day (bpd) compared with its last estimate.

However, it states that the outlook has improved due to raised expectations for China and India, where it forecasts increased demand, though it cautions that the forecast assumes no new waves of the pandemic.

It also warns that plans by OPEC and its allies, including Russia, to boost output by two million bpd from January 2021 would mean that supply will outweigh demand. Draws on oil storage would halt in the first quarter of 2021 if the producer group follows through on its plans to taper their production cut pact, it adds.

“Unless the fundamentals change, the task of re-balancing the market will make slow progress,” the IEA says.

The IEA report adds that the agency has revised up its prediction for demand growth in 2021, which will still represent a drop of 3 million bpd below pre-pandemic levels in 2019.

“With a Covid-19 vaccine unlikely to ride to the rescue of the global oil market for some time, the combination of weaker demand and rising oil supply provides a difficult backdrop to the meeting of OPEC+ countries due to take place on December 1. 

“Our current balances, incorporating the quota increase of 2 mb/d included in the OPEC+ supply agreement, imply almost zero stock change in the first quarter of 2021. Unless the fundamentals change, the task of re-balancing the market will make slow progress,” it concludes.