The world is burning through the oil supply glut that threatened to cripple the energy industry a few months ago, but spiraling coronavirus infection numbers are putting the recovery in jeopardy, the International Energy Agency said Wednesday.
In its monthly oil market report, the IEA said global oil supply in September was 9% below the pre-pandemic average of 2019. The amount of oil in expensive offshore floating storage has fallen sharply since May, the nadir of the global crude crisis, the agency said.
The IEA forecast the daily balance of crude supplies to be 4 million barrels less in the fourth quarter than it is now.
But that decline is happening from record-high levels and the drawdown in oil stocks could falter in the months ahead, with Covid-19 cases sharply rising in the developed world and the prospect of renewed restrictions on movement, the Paris-based organization said.
The climbing case number “surely raises doubts about the robustness of the anticipated economic recovery and thus the prospects for oil demand growth,” the IEA said.
Oil prices ticked up Wednesday, continuing Tuesday’s climb on bullish Chinese crude import data. Brent crude, the global benchmark, rose 2% to end at $43.32 a barrel and West Texas Intermediate futures, the U.S. gauge, gained 2.1% to close at $41.04 a barrel. Both benchmarks are more than 8% higher than a month ago, lifted by storm-related supply disruptions in the Gulf of Mexico. Lately rising coronavirus infection rates and added supply from Libya have kept prices from rising more.
In the context of the Organization of the Petroleum Exporting Countries’ monthly report released Tuesday, in which the cartel cut its 2021 demand forecast, the IEA’s warnings about further coronavirus risk may concern investors. The agency slashed its demand forecast for the third quarter of 2020 by 200,000 barrels a day, but left its annual forecasts unchanged for this year and next.
Behind September’s drop in supply has been a mixture of events causing outages among non-OPEC producers, such as maintenance in Brazil and strike action in Norway, the IEA said.
While U.S. supply dropped in August and is forecast to do so again in October—hurricanes have forced precautionary closures of Gulf of Mexico production—output increased in September, rising by 400,000 barrels from the previous month.
That said, supply losses from hurricane season and from further Norwegian industrial action in October will be more than offset by resurgent supply from Libya, the IEA said. The country’s government has reached a deal with renegade Russian-backed commander Khalifa Haftar, who had blockaded production there for eight months.
The agency said it expects Libyan supply to rise to 700,000 barrels a day by the end of 2020 from 300,000 barrels a day at its current rate.
While Libya remains exempt from the OPEC+ supply cuts agreed upon six months ago, increased supply from the North African producer could provide a headache for the cartel, which is still planning to further ease production cuts on Jan. 1, the United Arab Emirates’ energy minister said in an online energy forum on Tuesday.
The U.A.E. slashed its output by 440,000 barrels a day in September after the Gulf country surprised analysts during the summer by ramping up production. That contributed to an increase in compliance with the OPEC+ deal to 103% from 98% in August, the IEA said.
Write to David Hodari at David.Hodari@dowjones.com
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Appeared in the October 15, 2020, print edition as ‘Crude Glut Eases but Virus Rise Poses Risk.’