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The International Energy Agency (IEA) has said in its latest Oil Market Report (OMR) released on Friday that the global oil demand for 2020 is forecast to average 92.1 million barrels per day (bpd). This is an increase of 400,000 bpd from its market outlook forecast of last month.

The agency, however, said rising new Covid-19 cases that have seen the re-imposition of lockdowns in some regions, including North and Latin America, is casting a shadow over oil price recovery. Australia also re-imposed a new lockdown on its second-largest city, Melbourne, after a resurgence in coronavirus infections this week.

The increase in the IEA 2020 oil demand forecast was based on new data, which confirm that the worst of the demand destruction was in the first half of the year when demand fell by 10.75 million bpd. The agency said demand rebounded strongly in China and India in May, increasing by 0.7 million bpd and 1.1 million bpd month-on-month, respectively.

Crude oil prices also increased in June for the second successive month. According to the report, benchmark crude oil futures prices have been remarkably stable in the past few weeks with both Brent and West Texas Intermediate (WTI) hovering around $40 per barrel (pbl).

"We started the second half of this extraordinary year hoping that the worst of the oil market turbulence is behind us. A recovery in economic activity is shown by various indicators, including improved mobility in many regions," the Paris-based IEA said.

However, oil prices dropped on Friday, while headed for weekly declines as rising new Covid-19 cases were reported in the United States and elsewhere, thereby introducing uncertainty to demand outlook. As at 11:15 GMT on Friday, Brent Crude dropped by 1.28 per cent to $41.81 pbl, while the WTI was down 1.54 per cent to $39.01 pbl.

"While the oil market has undoubtedly made progress since “Black April”, the large, and in some countries, accelerating number of Covid-19 cases is a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside," IEA noted.

The new IEA report also shows that global oil supply fell to a nine-year low in June, dropping by 2.4 million bpd to 86.9 million bpd, as the Organisation of Petroleum Exporting Countries and other non-OPEC producers (OPEC+) embarked on output cuts. The cartel's compliance rate with the supply agreement was 108 per cent. Saudi Arabia slashed 1 million bpd production above the output it was requited to cut.  

The reduction in output by the cartel and other producers like the United States and Canada has led to an output decline of nearly 14 million bpd since April, according to IEA.

The agency expects global oil demand to decline by 7.9 million bpd in 2020 and to recover by 5.3 million bpd in 2021. The projected demand for next year is 97.4 million bpd.