Global oil outlook shifts from supply to demand: Fitch

By James Langton | January 21, 2021 | Last updated on January 21, 2021
1 min read
Oil drilling rig, tanghai county of hebei province oil fields in China
© Pan Demin / 123RF Stock Photo

Production cuts and inventory reductions were the primary reason for higher oil prices over the last few months but now an economic recovery and a resulting increase in demand will be key to continued price gains, said Fitch Ratings on Thursday.

In a new report, the rating agency said global oil demand could decline in the first quarter of 2021, amid the resumption of public health restrictions in a number of countries.

Even so, demand remains well above the levels of last spring, Fitch noted.

As well, recent production cuts should decrease the risk of oversupply, even with renewed lockdowns, said the ratings agency.

Looking further out, the key to stronger demand and higher prices will be dependent on Covid-19 vaccine distribution and its effect on the underlying recovery, Fitch said.

“The positive effects of vaccination programmes on the oil demand recovery may not be visible for several months until a critical mass of population is inoculated,” the report said.

“Mass vaccination is likely to lead to a sustainable improvement in oil demand,” Fitch added, “although there is some uncertainty about vaccines’ effectiveness against the most recent virus mutations.”

Additionally, a change in U.S. policy toward Iran could increase oil supply in the months ahead.

“Although significant excess inventories were consumed in the second half of 2020, oil volumes in storage remain high,” said Fitch. “Furthermore, there is huge unused production capacity in the market, mainly represented by Saudi Arabia, but also by Iran, which is subject to U.S. sanctions.”

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James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.