The Organization of Petroleum Exporting Countries (OPEC) has revised down its expectations for global oil demand for yet another month, as the renewed spike in coronavirus cases in major economies is slowing down the oil demand recovery.
This new forecast is disclosed in the monthly report of OPEC which was released on Wednesday, November 11, 2020, and is hampering the efforts by the group and its allies to support the market.
In its closely watched Monthly Oil Market Report (MOMR), OPEC cut its global oil demand forecast for this year by 300,000 barrels per day (BPD) compared to last month’s estimate, and now sees global oil demand at slightly above 90.0 million BPD this year, down by 9.8 million BPD compared to 2019.
The major reasons for the expected lower demand for this year is due to the recent new lockdowns and curfews in many major European economies, including the UK, France, Germany, and Italy, as a result of the second wave of coronavirus outbreak, as well as weaker-than-expected demand in the developed economies in the Americas in the third quarter of 2020.
OPEC’s report said moves by European governments to close down restaurants and encourage working from home would hit fuel demand for the rest of 2020, with the pandemic’s impact on the oil market lingering until the middle of next year.
The monthly report from OPEC also states that the weaker oil demand recovery is expected to continue into 2021, which cut its estimate for global oil demand next year too.
In 2021, oil demand is expected to grow by 6.2 million BPD when compared to 2020. This is a downward revision of 300,000 BPD compared to OPEC’s October forecast. Next year, total global demand is expected to reach 96.3 million BPD, still lower than the demand before the pandemic.
OPEC said, “These downward revisions mainly take into account downward adjustments to the economic outlook in OECD economies due to COVID-19 containment measures, with the accompanying adverse impacts on transportation and industrial fuel demand through mid-2021.’’
“The oil demand recovery will be severely hampered and sluggishness in transportation and industrial fuel demand is now assumed to last until mid-2021.’’
It can be recalled that there has been a second wave of coronavirus outbreak which has led to another round of lockdown in some major European economies and the Americas. This has really hit oil demand more than previously expected.
This also reinforces the need for OPEC and its allies to implement some production cut or even roll over the 7.7 million BPD cut into 2021 instead of easing it by 2 million barrels per day from January.