Oil is still some way off from reaching a balance, but there have been some recent gains on demand and prices. Image Credit: Reuters

Abu Dhabi: Global oil demand could be down by 8.6 million barrels per day (mbd) this year, from an earlier estimate of 9.3 mbd after gains were seen as cities worldwide eased lockdowns and allowed movement of people and vehicles.

“The outlook has improved somewhat and prices, while still far below where they were before the start of the COVID-19 crisis, have rebounded from April lows,” states the latest update from International Energy Agency.” There are two main reasons for this: the easing of lockdown measures and – more important – steep production declines in non-OPEC countries alongside the commitments made by the OPEC+ agreement.

“Mobility still remains limited for many, but businesses are starting to reopen gradually and people are returning to work, which will provide a boost to oil demand, albeit a modest one.”

Cuts make the difference

The report highlights how cuts by leading producers was starting to make a big difference, with May set to see supply down by 12 million bpd to a nine-year low of 88 mbd.

“For June, Saudi Arabia on Monday announced that it will reinforce the agreement by voluntarily cutting production by 1 mbd more than required. The UAE and Kuwait have followed suit with extra cuts of their own.”

OPEC, which also released its monthly outlook report this week forecasts oil demand to drop by 9.07 mbd this year, with the biggest contraction set to take place in the second quarter. The group did, however, note that the drop in demand could be revised as lockdown measures start to ease.