Oil Down On Gloomy IEA Demand Outlook, But Economic Recovery Continues Anyway

Even the IEA admits there could be stock draws for the rest of the year: File Image/PixaBay

An oil demand forecast from the International Energy Agency drew crude traders away - at least temporarily and not wholeheartedly - from continued promising economic news and caused them to send oil prices on Thursday downward by about 1 percent.

Brent dipped 43 cents to $45.00 per barrel and West Texas Intermediate also settled 43 cents at $42.24 per barrel after the IEA cut its 2020 oil demand forecast and said reduced air travel stemming from an uptick in Covid infections would lower global oil consumption by 8.1 million barrels per day (bpd).

However, the IEA couldn't deny that demand was ongoing and stated that "Our balances show that in June demand exceeded supply, and for the rest of the year there is an implied stock draw."

This came on the heels of the Organization of the Petroleum Exporting Countries (OPEC) stating that world oil demand will fall by 9.06 million bpd this year; but as was the case in previous sessions, the grim analytical predictions were buffered by more good economic news, which on Thursday took the form of Wall Street reportedly recovering most of the trillions lost during the start of the pandemic and the S&P 500 coming close to a record high.

Also, Ehsan Khoman, head of MENA research and strategy at MUFG, said, "The market moved from chronic oversupply in April-May to a deficit by June; the underlying oil market deficit is becoming more evident and, along with a broader reflation narrative, is keeping oil prices on an even keel."

Jim Ritterbusch, president of Ritterbusch and Associates, said, "Overall, neither yesterday's OPEC or today's IEA release appeared to have much effect on an oil market that is still primarily focused on the ongoing expansion in risk appetite that remains undeterred by lack of progress in formulating a viable U.S. stimulus deal."

He was referring to a stimulus package proposed by U.S. president Donald Trump whose delivery has stalled due to Democrats insisting the amount of the stimulus be at least doubled to $2 trillion, an amount critics say is unwarranted given the rapid rate of recovery in that country (on Thursday, for example, the number of laid-off Americans applying for unemployment benefits fell below 1 million last week for the first time since the pandemic began).

Undoubtedly, the fallout of the government-imposed restrictions to mitigate the spread of Covid continue: Royal Dutch Shell will permanently shut its 110,000 bpd facility in Philippines' Batangas province, one of only two oil refineries in the country; and Marathon Petroleum, the largest U.S. refiner by volume, plans to permanently halt processing at refineries in Martinez, California, and Gallup, New Mexico.

However, there have been no permanent plant closures in Europe due to the lockdowns or subsequent business restrictions.

Meanwhile on the vaccine front and potentially a support to crude prices in the near future, Jens Spahn, health minister of Germany, stated on Thursday that he was "optimistic that in the next months, and certainly in the next year, there can be a vaccine"; also, it was announced that Argentina and Mexico will produce the AstraZeneca vaccine for most of Latin America.