Rashid Husain SyedThe oil market recovery is faltering. Uncertainty over the speed of an economic recovery and whether there will be a full rebound in global oil demand is holding back the markets.

Stalled COVID-19 vaccination efforts in parts of the world and a strong dollar are also keeping the markets from rising much further.

The recent spike in oil markets was engineered – fundamentals didn’t drive it. There were issues about the longevity of the tight leash on the output. Could it be sustained and for how long?

The deep divide on the issue within the Organization of Petroleum Exporting Countries and its allies in OPEC+ was a known factor. After all, the markets seemed to be standing on borrowed legs. Several factors were simply beyond the control of OPEC+.

Air travel remains compromised. Question marks about the vaccine appear to be holding back the prospects of early economic recovery in several parts of the world. Several countries had to go back to some sort of lockdown.

Data from the world’s largest user, the United States, are also not helpful. The U.S. Energy Information Administration is reporting a U.S. crude oil inventory increase of 2.4 million barrels for the week to March 12.

The crude oil world is taking note. Global demand will take until 2023 to return to the pre-pandemic levels of 100 million bpd, the International Energy Agency (IEA) said on Wednesday in its annual Oil 2021 report, which included projections through 2026.

However, the agency said COVID-19 will change parts of consumer behaviour forever, with global gasoline demand likely past its peak.

Oilprice.com reported that by 2026, global oil demand is expected to reach 104.1 million bpd, up 4.4 million bpd from 2019 levels. Still, consumption in 2025 is projected to grow 2.5 million bpd less than the agency’s estimates last year.

Noting the trends, the IEA stressed that “there may be no return to ‘normal’ for the oil market in the post-COVID era.” The agency also said that in view of the fuel efficiency gains and a shift to electric vehicles, gasoline demand worldwide likely saw its peak in 2019.

Demand for jet fuel, the hardest-hit segment of oil demand, won’t return to 2019 levels by 2024, the IEA forecasts. It says business travel could be changed forever, with muted demand linked to the rise in online meetings during the pandemic.

In its separate Oil Market Report, the IEA also pointed out that a new supercycle with a looming supply crunch remains only a distant possibility, Tsvetana Paraskova reported in oilprice.com.

Global oil demand may have peaked in 2019 and natural gas will follow suit around 2025, S&P Global reported, quoting the director-general of International Renewable Energy Agency (IRENA) on March 16. IRENA’s prediction of peak oil mirrors BP’s projection last year that the world may never return to the pre-pandemic oil demand level of about 100 million bpd.

In its March Short Term Energy Outlook, the U.S. Energy Information Administration said it expects Brent crude oil prices to average US$64 per barrel in the second quarter of 2021 and then fall to less than US$60 a barrel through the end of 2022.

The recent spike in crude prices couldn’t be compared to the surges in the past, particularly the “magic decade” between 2003 and 2014, argued Karen E. Young in a Bloomberg piece.

Market engineering may result in oil demand spikes here and there. But in the mid to long term, fundamentals can’t be held back.

Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.

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