Slow Economic Recovery Threatens Energy Rebound
October 14, 2020
The energy markets continue to tread water as they try to figure out if they should respond to global inventories that are declining and move higher or trade lower as the cases of COVID-19 increase and demand is going down. These and other issues continue to puzzle the market and it congest buying time.
The International Energy Agency said a slow economic recovery form the pandemic threatens to delay a full rebound in world energy demand to 2025. In its central scenario, a vaccine and therapeutics could mean the global economy rebounds in 2021 and energy demand recovers by 2023, However, it said that under a “delayed recovery scenario”, the timeline is pushed back two years. In such a case, the IEA predicts “a deeper near-term slump erodes the growth potential of the economy, high unemployment wears away human capital, and bankruptcies and structural economic changes mean that some physical assets become unproductive as well. The IEA sees global energy demand falling by 5% in 2020, CO2 emissions related to energy by 7% and energy investments by 18%. Demand for oil is set to fall by 8% and coal use by 7% while renewables will see a slight rise. Overall, the IEA said it was too soon to say whether the pandemic had acted as a spur or a setback to governments and the energy industry as they seek to make the industry more sustainable. The IEA warned the uncertainty over future demand and the oil price plunge in 2020 could mean that oil producers are unsure how to gauge investment decisions leading to a mismatch in supply and demand, stoking future market volatility.
In its monthly report, OPEC said world oil demand will rebound more slowly in 2021 than previously expected as coronavirus cases increase. Demand is expected to increase by 6.54 million bpd next year to 96.84 million bpd. The growth forecast is 80,000 bpd less than expected a month ago. OPEC said its output fell by 50,000 bpd to 24.11 million bpd in September that amounted to 104% compliance with pledges, up from August figure of 103%.
The US EIA said US oil output from seven major shale formations is expected to fall by about 123,000 bpd in November to about 7.69 million bpd. Output at every formation is expected to fall and the largest decline is forecast in the Eagle Ford basin of South Texas, where production is expected to fall by about 34,000 bpd to about 1 million bpd.