IEA pushes back against Wall Street calls for oil ‘supercycle’

The expectation of Wall Street banks that oil has entered a new and sustained period of dramatic price rises is misguided, said the International Energy Agency on Wednesday.

The Paris-based body said “oil’s sharp rally to near $70 a barrel has spurred talk of a new supercycle and a looming supply shortfall. Our data and analysis suggest otherwise.”

Those forecasting a return to $100-a-barrel crude — last hit in 2014 — say huge fiscal stimulus measures will boost demand just as spending on new production declines, fuelling a longer-lasting price surge.

Brent crude, the international oil benchmark, is up 80 per cent since the end of October 2020 to $67.56 a barrel, driven by optimism about the rollout of vaccines and production cuts by some of the world’s biggest exporters.

But the IEA said “oil inventories still look ample compared with historical levels” even as the stock overhang from 2020 — as the pandemic crushed demand for crude — begins to dissipate.

Opec countries and allies outside the cartel, including Russia, agreed last April to cut production by a record 9.7m barrels a day. The group has since gradually reduced the curbs to about 8m b/d.

A rebound in demand and continued production restraint by the so-called Opec+ group point to a sharp decline in inventories later this year. But, for now, “there is more than enough oil in tanks and under the ground to keep global oil markets adequately supplied”.

The IEA said the cuts implied there was significant spare production capacity — at about 9.3m b/d — that could be brought on by these countries quickly, should the market tighten too much.

Oil producers have been wary about unleashing more barrels on to the market, given the unpredictability of the virus. This month, Opec+ decided against increasing supply by 1.5m b/d from April.

In a separate report released by the IEA on Wednesday, it said while oil markets had rebounded from the big demand shock triggered by Covid-19 they “still face a high degree of uncertainty”.

“The staggering inventory surplus that built up last year is being worked off and global oil stocks, excluding strategic reserves, will return to pre-pandemic levels in 2021. And yet, there may be no return to ‘normal’ for the oil market in the post-Covid era,” the IEA said.

Oil demand, which hit close to 100m b/d in 2019, is not expected to recover back to this level until 2023, the IEA said. Still, a peak in consumption is not expected. By 2026, global oil demand is projected to reach 104.1m b/d.