The International Energy Agency (IEA) has revised its forecast for oil demand in 2020. According to the organization’s report published on Friday, July 10, according to the results of the year, energy consumption in the world can be reduced by 7.9 million barrels per day - up to 92.1 million barrels per day. Earlier, the IEA expected a decrease of 8.1 million.
The agency improved its forecast for the third time in a row. According to the organization’s experts, as a result of the coronavirus pandemic and the massive introduction of quarantine measures in the first half of 2020, global demand for energy sources decreased by 10.75 million barrels per day. Meanwhile, according to the IEA, the worst period for the world oil market has already passed. So, with the gradual removal of restrictions in a number of countries, hydrocarbon consumption began to recover.
“With the beginning of the second half of this unusual year, we hope that the worst for the oil market is left behind. Various indicators indicate a revival of economic activity. In particular, the mobility of the population has improved in many regions, ”the organization’s report says.
According to the IEA, the most active oil consumption began to grow in China and India. So, in May, the demand for energy raw materials in both countries grew immediately by 0.7 million and 1.1 million barrels per day, respectively.
“Both countries are traditionally major importers of oil. At the same time, in the spring, against the backdrop of a collapse in world prices for raw materials, the countries took advantage of the situation to accumulate their reserves. This is especially true of India, which considered the fall in quotations in the II quarter a historic chance and actively bought oil. At the same time, the Chinese economy brings surprises, noting a faster recovery than expected, and thus supporting demand, ”EXANTE managing partner Alexei Kirienko told RT.
According to the Caixin analytical agency, in June the growth of business activity in China accelerated to a maximum over the past 10 years after a sharp drop in February. At the same time, industrial indicators returned to levels before the pandemic.
In their forecast, the IEA experts do not exclude that in the second half of 2020, a deficit may form in the world oil market. In addition to the recovery in demand, experts attribute this to a reduction in global supply of raw materials as a result of the OPEC + deal.
On May 1, the countries participating in the OPEC + agreement renewed their partnership and, to combat the global overabundance of raw materials, reduce oil production. According to the original terms of the transaction, from May to June, production of raw materials in the countries participating in the agreement was supposed to decrease by 9.7 million barrels per day, from July to the end of 2020 - by 7.7 million, and from January 2021 to April 2022 - by 5.8 million. Later, the states decided to continue to reduce production by 9.7 million barrels per day until the end of July.
According to IEA estimates, in May, oil exporting countries fulfilled the terms of the OPEC + agreement by 88%. At the same time, in June, the volume of transaction execution exceeded the target level and amounted to 108%.
“Given that global supply is constrained by the OPEC + mechanism, the oil market is entering a phase of gradual balancing. If we assume that in July-August demand will recover by about 5% per month, then by the end of summer a shortage of 1-1.5 million barrels per day may form in the market. In the future, September-October, oil consumption may exceed the supply by 2-3.5 million barrels per day, ”said Anton Pokatovich, BCS Premier economist, RT.
Price recovery
According to the IEA, the situation with the coronavirus pandemic continues to pose certain risks for the global oil industry. Meanwhile, according to Alexei Kiriyenko, the expected deficit in the global raw materials market will accelerate the return of oil prices to pre-crisis levels.
Note that since the beginning of summer, the cost of Brent crude on the ICE exchange in London has grown by almost 20% and is currently trading near $ 42-43 per barrel. At the same time, by the end of the year, quotes may reach $ 50-60 per barrel, Kiriyenko believes.
As Alexander Koloskov, broker of QBF IR, noted in an interview with RT, the strengthening of oil prices should positively affect the dynamics of the Russian currency. According to experts, in these conditions, the dollar exchange rate by the end of the year is able to fall again to 65 rubles.
In addition, an increase in oil prices will support the Russian budget as the country's economy recovers. This point of view in an interview with RT was expressed by Georgy Ostapkovich, Director of the Center for Market Studies of the Institute for Statistical Studies and Economics of Knowledge, Higher School of Economics.
Recall that as of 2020, the Russian budget has a basic oil price of $ 42.4 per barrel. Under the budget rule, if commodity quotes fall below this mark, lost oil and gas revenues are compensated for at the expense of the National Wealth Fund (NWF). If the cost of raw materials on the market rises above this indicator, excess profits, on the contrary, are sent to the NWF.
“Raising the price of oil above $ 42.4 per barrel is a positive factor for the budget. If the price reaches $ 50, only $ 10 below the average in 2019, this will provide additional opportunities for the treasury. It will be possible to increase expenditures on supporting the economy, and reduce the deficit, which is projected at 4-5% of GDP this year, and begin to balance the budget, ”concluded Ostapkovich.