The oil market could be set for a recovery in the second half of the year on signs of increased demand, but a rise in new Covid-19 cases in North and Latin America threatens to derail progress, according to the International Energy Agency (IEA).

The Paris-based agency said new data showed that demand fell by 10.75 million barrels per day in the first six months of the year as against the previous year.

For the second half, the IEA expects the level of decline to improve to just 5.1 million bpd over the 2019 figure.

“We estimate that global oil demand this year will average 92.1 million bpd, down by 7.9 million bpd versus 2019, a slightly smaller decline than forecast in the last report,” the IEA said in its monthly Oil Markets report.

“This is mainly because the decline in the second quarter of 2020 was less severe than expected,” it said.

On the supply side, global oil production fell sharply in June to stand at 13.7 million bpd below the April level.

Opec+ compliance high

Opec and other key producers led by Russia, in an alliance called Opec+, have agreed historic curtailments of 9.7 million bpd.

“The compliance rate with the Opec+ supply agreement was 108%,” according to the agency.

“This includes overperformance by Saudi Arabia, which cut production by 1 million bpd more than required, reducing Opec crude output to its lowest point in nearly three decades.”

“This solid performance by the Opec+ group has been supplemented by substantial market-driven cuts, mainly in the US,” the IEA said.

According to the agency’s data, total US oil production fell by nearly 1 million bpd in April versus March.

“We estimate that May and June will see further month-on-month falls of 1.3 million bpd and 500,000 bpd, respectively,” the IEA said.

Oil price stability

In the past few weeks, benchmark crude oil futures prices have been relatively stable, with both Brent and WTI hovering around $40 per barrel, with futures markets anticipating a transformation in the oil market from substantial surplus in the first half of the year to a deficit in the second half.

However, the agency warned that in the second half of the year supply could start to grow.

“We see US production bottoming out and then slowly growing and Opec+ countries are set to ease their existing cut by around 2 million bpd from August,” it said.

“Also, by the end of the year Libya’s oil production could be as much as 900,000 bpd higher than it is today,” it added.

“While the oil market has undoubtedly made progress since ‘Black April', the large, and in some countries, accelerating number of Covid-19 cases is a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside,” the report said.

Coronavirus

Better days for oil demand ahead but new Covid-19 cases a concern – IEA