IEA Nudges Up 2025 Demand Growth Forecasts In Latest Report

Oil-production restraint by OPEC and 10 cooperating countries grows more challenging with time, and just when market projections began to hint at relief for the OPEC-Plus group, the spread of the new coronavirus in China and beyond became a sudden and possibly serious impediment to global economic growth and oil demand. Yesterday’s slide in crude oil prices amid newly heightened concern about the potential pandemic’s effects will only add to the challenges that OPEC-Plus countries will face in managing crude supply. So far, the OPEC-Plus group has achieved unprecedented compliance with its production ceilings, which it implemented in January 2017 and has adapted a few times since in response to market pressure. That effort has kept the crude price above the ruinous levels of 2015, memories of which have encouraged quota discipline. But the threat of a major, coronavirus-related slowdown in global oil demand could seriously undermine OPEC-Plus’s efforts, which already had been hurt by dissent within its ranks. Today, we continue our series with a look at Monday’s price drop, the latest supply and demand forecasts and a discussion of the obstacles that might affect OPEC-Plus going forward. 

This summer’s resurgence of the COVID-19 pandemic in many parts of the world will wreck forecasts of demand for petroleum products and, therefore, for crude oil. Most oil-market forecasts published in the first half of 2021 didn’t anticipate the 75% jump in new weekly coronavirus cases that has occurred since mid-June, or new possibilities for travel limits and other restrictions of the type that clobbered economies — and oil demand — around the globe in 2020. Obviously, swerves away from expectations for oil consumption scramble the supply-demand balances widely used in oil-market analysis. But they do happen. In fact, deviation between forecast and actual demand is the rule, not the exception. It’s just not always as extreme as the balance adjustments likely to be needed after the latest COVID surprise. Even when there’s no deadly pandemic to worry about, demand can be tricky to define, difficult to measure, and frustrating to predict. In today’s blog, we discuss the intricacies of oil-demand assessment and explain why balance calculations, based on forecasts destined to be wrong, remain meaningful to analysts mindful of their limitations.