IEA Revises Upward Oil Demand Forecast for This Year
Goldman Sachs Says "Worst Is Over"
[Asia Economy Reporter Naju-seok] Ahead of the expiration of the West Texas Intermediate (WTI) June contract (on the 19th), oil price forecasts are divided. Some predict that prices could fall into negative territory again, while others believe the worst is over.
On the 14th (local time), the International Energy Agency (IEA) assessed in its monthly outlook report that the oil market situation has improved. With the United States and Europe lifting lockdown measures to curb the spread of COVID-19 and resuming economic activities, along with producing countries' moves to cut production in response to decreased demand, concerns about oversupply in the oil market have lessened.
The IEA revised upward its global oil demand forecast for this year in the report. Previously, the IEA had estimated daily oil demand at 90.5 million barrels, but this was adjusted to 91.2 million barrels in the latest report. The IEA stated, "Although oil demand this year has significantly decreased compared to last year, it is not as severe as initially expected," adding, "The risk factor for recovery will be whether COVID-19 resurges."
The IEA also noted visible changes on the supply side. Following OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) cutting oil production by 9.7 million barrels per day starting from the 1st of this month, the production cuts by non-OPEC+ countries such as the United States and Canada are also substantial. The IEA expects oil production this month to decrease by 12 million barrels compared to the end of last year, resulting in an average daily production of 88 million barrels.
Particularly notable is the scale of production cuts within the United States. According to the IEA's analysis, compared to the end of last year, non-OPEC+ countries not participating in the alliance have cut production by 4 million barrels, of which the United States accounts for 2.8 million barrels. This represents the largest single-country production cut compared to the end of last year. The shutdown of shale wells and other facilities due to the oil price decline appears to have been effective.
On the other hand, warnings have emerged that oil prices could fall into negative territory again.
The U.S. Commodity Futures Trading Commission (CFTC) unusually issued a caution the day before, addressing exchanges, futures brokers, and clearinghouses, urging them to "prepare for the possibility of oil prices falling into negative territory." On April 20th, the New York Mercantile Exchange (NYMEX) saw the WTI May contract close at -$37.63 per barrel. This was the first time oil prices recorded negative values. Since then, concerns have grown in the oil market about whether storage facilities can accommodate the oversupplied oil amid the supply glut.
However, despite the CFTC's warning, concerns about storage shortages have diminished. According to the U.S. Energy Information Administration's (EIA) analysis of U.S. crude oil inventories released the previous day, domestic oil stocks decreased by 745,000 barrels to 531.5 million barrels. With U.S. crude inventories declining for the first time in four months, worries about oil stockpiles have relatively eased.
According to CNBC, Jeffrey Currie, the chief commodities analyst at U.S. investment bank Goldman Sachs, said, "The market situation has already turned the corner," adding, "We have entered the inflection point we have been talking about." This suggests that the oil market, which plummeted after the COVID-19 pandemic, has passed its worst phase.
Meanwhile, WTI June contracts closed at $27.56 per barrel, up 9% ($2.27), and Brent July contracts ended at $31.13 per barrel, up 6.6% ($1.94) on the day.
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