Oil at $70 does not signal return of a supercycle, IEA says

The agency expects world oil demand to recover 63% of the volume lost in 2020 due to the pandemic

Workers at a Colgate Energy site in Texas. Brent and WTI have gained 30% since the beginning of the year, when news of vaccine distribution and a weak dollar moved the needle on prices. Bloomberg

Global oil markets are not riding a supercycle for commodities, even as prices have traded close to $70 per barrel in recent weeks, the International Energy Agency said in its latest monthly market report.

The Paris-based agency warned of "ample inventories" that accumulated in the second quarter of last year, compared with historical averages.

"Oil’s sharp rally to near $70 per barrel has spurred talk of a new supercycle and a looming supply shortfall. Our data and analysis suggest otherwise," the IEA said on Wednesday.

"By the end of January, OECD industry stocks, at 3,023 million barrels, were still 110 million barrels higher than a year ago – at the onset of the Covid crisis."

The IEA expects world oil demand to recover 63 per cent of the volume lost in 2020 due to the pandemic. Demand is expected to rise by 5.5 million bpd in 2021 after contracting 8.7 million bpd last year.

In contrast to estimates by other organisations, the IEA sees consumption picking up in the first quarter of the year due to cold weather in northern Asia, Europe and the US.

Opec, in its monthly oil market report, had a higher demand estimate for crude at 5.9 million bpd but backloaded much of the expected growth to the second half of the year.

The Vienna-based exporters' group lowered estimates for the first half of the year lower due to movement restrictions to control the spread of Covid-19 in parts of Europe as well as to account for higher unemployment rates in the US.

The IEA expects a strong return to growth this year.

"Global oil demand was stronger than expected at the start of the year, boosted by colder weather and improved industrial activity in the US and elsewhere," the agency said.

It expects global oil demand will return to pre-Covid levels by 2023.

Oil inventories will continue to decline, supported by stronger demand and continued action by Opec+, the group that includes Russia and other non-member producers.

The alliance is cutting 7.2 million bpd of production until the end of April, supported by an outsized contribution of 1 million bpd from Saudi Arabia, its biggest exporter.

International benchmark Brent and West Texas Intermediate have gained 30 per cent since the beginning of the year, when news of vaccine distribution and a weak dollar moved the needle on prices.

Brent and WTI are over 110 per cent higher than their values year-to-date.

Brent was down 1.21 per cent at $67.56 per barrel by 3.13pm UAE time, while WTI was down 0.99 per cent at $64.16 per barrel.