Global oil supply rose by 2.5 million barrels a day in July after Saudi Arabia ended its voluntary production cut of 1 million barrels a day and U.S. crude oil production began to rise again. Including the United Arab Emirates’ failure to meet its targeted production cuts, global supply is expected to remain unchanged at 90 million barrels a day in August.
In its Oil Market Report for August published Thursday, the International Energy Administration (IEA), reiterated its July projection that global oil supply will fall by 7.1 million barrels a day in 2020. The agency also raised its estimate of demand contraction by 140,000 barrels a day to 8.1 million barrels a day, the IEA’s first downgrade to the demand estimate in several months.
The downgrade is due entirely to uncertainty about how quickly the COVID-19 pandemic will be controlled and people begin driving again.
Demand for road transport fuels (gasoline and diesel fuel) was “slightly stronger” than expected in the first half of 2020. Looking ahead, the IEA commented that “for the second half we remain cautious and the upsurge in Covid-19 cases has seen us downgrade our estimates, mainly for gasoline.”
Since April 1, when Brent crude traded just under $25 a barrel, the price for the benchmark grade had risen to more than $43 a barrel in July. In its August report, the IEA said that July crude traded in a narrow range of around $3 a barrel. West Texas Intermediate (WTI) averaged $40.77 a barrel on the NYMEX last month, and Brent crude averaged $43.22 a barrel.
The IEA noted that futures prices are again rising faster than current spot prices, a commodities market position known as contango. The differential between spot and futures prices had narrowed in June, leading to inventory drawdowns which, in turn, led to higher futures prices.
Crude stockpiles in OECD member nations rose by 16.2 million barrels in June, to a total of 3.24 billion barrels. The IEA also noted that floating storage fell from an all-time high of 220.5 million barrels in June to 184.8 million barrels in July. Floating storage refers to loaded crude carriers that are sailing in circles while waiting for buyers.
Global demand for crude is now estimated at 91.9 million barrels a day, a year-over-year drop of 8.1 million barrels. The IEA also lowered its estimate of 2021 demand by 240,000 barrels a day to 97.1 million barrels, largely the result of continued weak demand for aviation fuel.
With WTI prices at around $40 a barrel, U.S. crude production is rising again the IEA noted. From a low of 10 million barrels a day in May, U.S. production had risen to 10.7 million barrels by last week.
WTI crude traded at around $42.50 a barrel early Thursday morning, down about 0.2% from Wednesday’s settlement of $42.67. Brent crude traded down nearly 0.4% at around $45.25.