Oil cracks $50 per barrel level as Asian demand is back at pre-COVID levels

Muscat: Oil prices traded at a 9-month high level at around the US$50 per barrel mark backed by COVID-19 vaccine deployment across several countries, according to a new report.
Traders were excited on the expected impact on oil demand in the coming months as the rising cases of COVID-19 are countered with a successful vaccine, according to the Kuwait-based Kamco Invest, an investment strategy and research firm.
A Bloomberg report showed that European demand for oil and diesel is once again gaining pace after declining in November-2020. This further supported ongoing strong consumption in Asia and Latin America that more than offsets weak demand trend in the US.
The Organisation of Petroleum Exporting Countries (Opec) once again lowered oil demand forecast for 2020 in its latest monthly oil market report to a decline of 9.77 million barrels per day as compared to a decline of 9.75 million barrels per day as per its previous forecast, and demand is now expected to reach 89.99 million barrels per day in 2020.
The downward revision reflected lower-than-expected oil demand data for the Organisation for Economic Cooperation and Development (OECD) region for 2020 third quarter especially led by lower transportation fuel demand in the US and OECD Europe. This resulted in a downward revision of around 0.18 million barrels per day for the OECD region, according to Kamco's report.
However, an upward revision to demand data for the non-OECD countries resulted in an upward revision of 0.16 million barrels per day, partially offsetting the overall world oil demand.
In the non-OCED region, demand in China was better-than-expected led by steady recovery across sectors further supported by increasing demand from India. China recorded its fifth consecutive month of oil demand growth during October-2020, although the year-on-year (y-o-y) growth was slower than the previous month at 0.08 million barrels per day against 0.2 million barrels per day during September-2020.
Meanwhile, oil demand in India remained subdued as compared to last year’s levels with a y-o-y decline of 3.6 per cent to reach 17.83 million tonnes during November-2020. However, consumption increased month-on-month (m-o-m) led by increasing transportation and business activity.
For 2021, global oil demand growth forecast underwent a steeper downward revision of 0.35 million barrels per day to a y-o-y growth of 5.9 million barrels per day to reach 95.89 million barrels per day.
The revision reflected the uncertainty related to the structural impact of COVID-19 and the labour market on the OECD transportation fuel outlook during 2021 first half.
Opec estimates for 2021 assumes growth of 4.4 per cent in global economic activity that would lead to higher demand for industrial fuels, particularly in OECD Americas and China whereas demand growth for transportation fuels would depend on the impact of COVID-19 measures, according to Kamco's report.
Meanwhile, International Energy Agency (IEA) also lowered its oil demand estimates for 2020 with a downward revision of 50 million barrels per day to a decline of 8.8 million barrels per day to reach 91.2 million barrels per day for the year. The agency’s 2021 demand forecast underwent a steeper revision, according to Kamco's calculations, led by weak demand for jet fuel/kerosene.
In terms of current inventory, the weekly data from Energy Information Administration (EIA) showed the biggest inventory build in 34-weeks with an increase of 15.2 million barrels or 3.1 per cent during the week ended December 4, 2020.
The EIA said that although inventories are expected to remain high, the stocks would decline at a faster pace next year led by rising global oil demand coupled with restrained Opec+ production. Weekly data on crude production showed a sustained level of output at 11.1 mullion barrels per day whereas rig count data continued to show weekly growth.
According to Baker Hughes, an oil rig in the US reached 246 during the week ended December 4, 2020, with a weekly increase of 5 rigs. The rig count has declined only during three out of the last 14 weeks and added 66 new rigs during the same time.