IEA says Covid vaccine ‘unlikely to ride to the rescue’ of world oil market for some time

Energy

Rail wagons for oil, fuel and liquefied gas cargo stand in sidings at Yanichkino railway station, close to the Gazprom Neft PJSC Moscow refinery in Moscow, Russia, on Monday, April 27, 2020.

Andrey Rudakov | Bloomberg | Getty Images

LONDON — The International Energy Agency (IEA) on Thursday cut its 2020 global oil demand forecast and said it does not expect the prospect of a coronavirus vaccine to significantly boost demand “until well into next year.”

In its latest closely-watched monthly report, the IEA said it now expects world oil demand to contract by 8.8 million barrels per day this year. That reflects a downward revision of 0.4 million barrels from last month’s assessment.

The Paris-based energy agency trimmed its near-term outlook on weak historical data and a resurgence of Covid-19 cases in Europe and the U.S.

For 2021, the IEA said world oil demand growth will rise by 5.8 million barrels per day, representing an upward revision of 0.3 million barrels from last month.

Oil prices have notched three consecutive trading sessions of gains since Pfizer and BioNTech said Monday that early results showed their vaccine candidate was more than 90% effective in preventing Covid infections.

It is hoped a safe and effective vaccine could help bring an end to the coronavirus pandemic that has claimed over 1.28 million lives worldwide.

Huge challenges remain before a Covid-19 vaccine can be rolled out, but oil markets cheered the news, hoping it could lead to increased energy demand in the coming months.

“However, 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 IEA said.

International benchmark Brent crude futures traded at $43.66 a barrel on Thursday morning, down around 0.3%, while U.S. West Texas Intermediate crude stood at $41.33, roughly 0.35% lower.

OPEC+ meeting

The IEA’s latest report comes shortly before an energy alliance of some of the world’s most powerful crude producers will meet to discuss the next phase of oil production policy.

OPEC and non-OPEC allies, known collectively as OPEC+, are scheduled to hold talks on Dec. 1.

In the face of ongoing lackluster global demand for oil, the group had agreed to a record supply cut of 9.7 million barrels per day starting on May 1. The cut was subsequently scaled back to 7.7 million in August and OPEC+ has said it plans further tapering next year.

“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,” the IEA said.

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

OPEC on Wednesday cut its global oil demand forecasts for the remainder of this year and 2021, citing a weaker-than-expected economic outlook and an upsurge in coronavirus cases.

The 13-member producer group said it anticipates world oil demand to contract by 9.8 million barrels per day year-over-year in 2020, before rising 6.2 million barrels on an annual basis next year.

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