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(Sharecast News) - Global demand for oil is set to fall at the fastest rate in history this year, a closely-watched industry report has predicted, before rebounding in 2021.
Oil prices plummeted at the start of 2020, rocked by a price war between Opec and Russia and by the Covid-19 pandemic causing global demand to collapse.
Opec and Russia have since called a truce, and Opec+ has introduced swingeing production curbs to reduce the supply glut. As a result, the global oil supply fell by 11.8m barrels per day (bpd) in May, according to the June oil market report by the International Energy Agency, and crude prices rose to the highest level in three months.
Prices also benefited from rising demand as countries started to exit lockdown measures.
However, the IEA still expects global demand to fall by 8.1m bpd in 2020, which it called "the largest in history".
The Paris-based organisation continued: "Our first forecasts for 2021 as a whole show demand growing by 5.7m bpd, which, at 97.4m bpd, will be 2.4m bdp below the 2019 level." That would represent the biggest one-year improvement on record, but demand is not expected to return to pre-pandemic levels until 2022, primarily because people will be flying less.
"This 2.4m bdp gap is largely explained by the dire situation of the aviation sector," the IEA said. "Data from the International Air Transport Association show that passenger traffic in 2020 will be nearly 55% lower than in 2019. The industry will continue to be a drag on oil demand through 2021."
Output is expected to fall by 7.2m bdp this year, before recovering in 2021, assuming the easing of Opec+ cuts, that Norway, Brazil, Guyana "deliver solid gains" and Libya is able to sustain a rebound.
The IEA said: "While the oil market remains fragile, the recent modest recovery in process suggests that the first half of 2020 is ending on a more optimistic note. New data show that demand destruction in the early part of the year was slightly less than expected, although still unprecedented."
It concluded: "In sporting terms, the 2020 oil market is now close to the half time mark. So far, initiatives in the form of the OPEC+ agreement and the meeting of G20 energy ministers have made a major contribution to restoring stability to the market.
"If recent trends in production are maintained and demand does recover, the market will be on a more stable footing by the end of the second half. However, we should not underestimate the enormous uncertainties."
As at 1100 BST, Brent crude and WTI were both trading around 1% higher, at $40.28 and $37.59 a barrel respectively.
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