IEA cuts oil demand forecast as Delta variant spreads

Global demand for oil will be less than expected in 2021 as fresh Covid-19 restrictions to contain the Delta variant suppress oil use, the International Energy Agency said.

The IEA said after a surge in demand for oil in June growth reversed in July as the Delta variant of Covid-19 spread across important markets. The agency trimmed its estimate for 2021 demand by 100,000 barrels a day to 5.4 million barrels per day with sharper declines predicted for the second half.

The Paris-based agency upgraded its estimate for 2022 demand by 200,000 barrels per day to 3.2 million barrels per day. It said its updated prediction for 2021 was partly based on revisions to historical data.

"Growth for the second half of 2021 has been downgraded more sharply, as new Covid-19 restrictions imposed in several major oil consuming countries, particularly in Asia, look set to reduce mobility and oil use," the IEA said.

China, the world's second-biggest consumer of oil, is going through its most severe Covid-19 outbreak since 2020, fuelled by the highly contagious Delta variant. Beijing has imposed mass testing and travel restrictions in an attempt to stem the spread, raising doubts about the level of economic growth.

Demand is faltering as the supply of oil increases, the IEA said. In July, producers boosted output by 1.7 million barrels per day as Saudi Arabia ended voluntary curbs and the North Sea bounced back from maintenance.

As a result, oil inventories have fallen sharply. In June, OECD industry stocks plunged by 50 million barrels, or 1.7 million per day, to 131 million barrels below the five-year average. the IEA said.

"The scale could tilt back to surplus in 2022 if OPEC+ continues to undo its cuts and producers not taking part in the deal ramp up in response to higher prices," the agency said.

Shares of BP fell 1% to 308.5p at 11:45 BST and Royal Dutch Shell shares were down 0.9% to £14.77.