OPEC Monthly Report: Improvement in India Will Drive Oil Demand Recovery in the Second Half

On May 11, OPEC stood by its forecast of a strong recovery in global oil demand in 2021 as growth in China  the United States countered the epidemic crisis in India, a prospect that supports the group's plan to gradually ease production cuts. Meanwhile, OPEC expects the epidemic in India to improve in the second half of the year, further driving a recovery in demand.

OPEC on Tuesday (May 11) stood by its forecast for a strong recovery in global oil demand in 2021 as growth in China  the United States countered the epidemic crisis in India, a prospect that supports the group's plan to gradually ease production cuts. Meanwhile, OPEC expects the epidemic in India to improve in the second half of the year, further driving a recovery in demand.

In its monthly report, OPEC said oil demand would increase by 5.95 million barrels a day,  6.6 percent, this year. The forecast was unchanged  the previous month.

While the report was optimistic about prospects for a recovery in oil demand, OPEC also warned that "significant uncertainties" surrounding the epidemic  concerns about India were weighing on oil prices. Crude oil prices fell after the report was released, but are still up 30 percent this year, with Brent crude nearing $68 a barrel.

"India is currently facing severe challenges related to the outbreak  therefore will face a negative impact on its recovery in the second quarter, but its momentum is expected to continue to improve in the second half of 2021," OPEC said in its monthly report. The seven-day average number of COVID-19 cases in India hit a record high on Tuesday. Refiners in India, the third-largest oil consumer, are slowing down crude processing.

In the report, OPEC lowered its forecast for oil demand in the second quarter by 300,000 BPD, raised its forecast for the third quarter by 150,000 BPD  raised its forecast for the final three months of 2021 by 290,000 BPD.

OPEC now expects world economic growth of 5.5 per cent in 2021, up  5.4 per cent last month, on the assumption that the impact of the outbreak will be "largely contained" by the beginning of the second half. "Oil demand tends to recover in the second half of the year," OPEC said.

OPEC+ agreed in April to gradually scale back production cuts starting in May after the U.S. government called on Saudi Arabia to maintain affordable energy prices. The report also showed that OPEC's oil production had risen slightly, as Iran's output increased by 30,000 BPD in April to 25.08 million BPD. Iran is exempt  voluntary production cuts because of U.S. sanctions.

OPEC+ cut supply by a record 9.7 million barrels a day last year to shore up collapsing demand. Most of these restrictions remain in place even after the April decision. In the report, OPEC also raised its crude oil production forecast for this year. Non-OPEC production is expected to increase by 700,000 b/d, down  930,000 b/d the previous month. As a result, OPEC raised its forecast for global demand for its crude oil this year to 27.7 million BPD, an increase of 200,000 BPD  last month,  allowed Opec to increase its average production in 2021.

(Daily chart of Brent crude oil futures)

Brent crude futures traded at $67.22 a barrel at 21:25 Beijing time on May 11.

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Source: China Energy Network