'Ample' supply weakens case for oil 'supercycle' - IEA

Demand for oil is set to rebound sharply in 2021 but talk of a supercycle is exaggerated, the International Energy Agency forecast on Wednesday.

Publishing its monthly oil report, the Paris-based body said it expected world oil demand to increase by 5.5m barrels a day this year. Cold weather in Asia, Europe and the US supported higher-than-expected demand in the first quarter, while a stronger global economy and vaccine deployment was set to underpin growth in the second.

The projected improvement follows last year’s historic collapse, when the Covid-19 pandemic saw demand contract by 8.7m b/d.

However, the IEA said a new era of high prices was unlikely.

The Organization of the Petroleum Exporting countries, along allies such as Russia – known collectively as Opec+ – recently agreed to keep production largely steady in April. That, alongside improving demand, has helped underpin oil prices and led some to speculate that large, multi-year price rises, otherwise known as a supercycle, could be imminent. Some have forecast that prices could potentially return to $100 per barrel for the first time since 2014.

Brent crude prices have jumped around 80% in recent months and are currently trading just shy of $68 a barrel.

But the IEA said: “Oil’s sharp rally to near $70 a barrel has spurred talk of a new super-cycle and a looming supply shortfall. Our data and analysis suggest otherwise.”

It pointed to “ample” oil inventories, even with a steady decline on 2020’s massive build up. At the end of January, OECD industry stocks were 3,023m barrels, 110m higher than a year previously, according to the IEA.

“On top of the stock cushion, a hefty amount of spare production capacity has built up as a result of Opec+ supply curbs,” the IEA added. “The group agreed a record 9.7m b/d output cut last year and is still withholding roughly 8m b/d from the market.”

It concluded: “The prospect of stronger demand and continued OPEC+ production restraint point to a sharp decline in inventories during the second half of the year. For now, however, there is more than enough oil in tanks and under the ground to keep global oil markets adequately supplied.”