IEA warns COVID vaccine unlikely to boost global oil demand
Global oil demand is unlikely to get a significant boost from the roll out of vaccines against COVID-19 until well into 2021, the International Energy Agency (IEA) says, a view that has curbed oil price gains since vaccine progress was announced earlier this week.
In its monthly report, the Paris-based IEA says that it is “far too early to know how and when vaccines will allow normal life to resume. For now, our forecasts do not anticipate a significant impact in the first half of 2021.
“The poor outlook for demand and rising production in some countries ... suggest that the current fundamentals are too weak to offer firm support to prices.”
Brent crude fell by 0.8 percent to £33 a barrel in early London trade, snapping three straight days of gains.
While the IEA report notes that OECD countries had modestly drawn down their crude oil stocks for two months in a row by September, it adds that storage levels are still not far from peaks in May, at the height of the pandemic.
Furthermore, it cites a resurgence of Covid-19 infections in Europe and the United States and renewed lockdown measures for revising down its outlook for global oil demand for 2020 by 400,000 barrels per day (bpd) compared with its last estimate.
However, it states that the outlook has improved due to raised expectations for China and India, where it forecasts increased demand, though it cautions that the forecast assumes no new waves of the pandemic.
It also warns that plans by OPEC and its allies, including Russia, to boost output by two million bpd from January 2021 would mean that supply will outweigh demand. Draws on oil storage would halt in the first quarter of 2021 if the producer group follows through on its plans to taper their production cut pact, it adds.
“Unless the fundamentals change, the task of re-balancing the market will make slow progress,” the IEA says.
The IEA report adds that the agency has revised up its prediction for demand growth in 2021, which will still represent a drop of 3 million bpd below pre-pandemic levels in 2019.
“With a Covid-19 vaccine unlikely to ride to the rescue of the global oil market for some time, the combination of weaker demand and rising oil supply provides a difficult backdrop to the meeting of OPEC+ countries due to take place on December 1.
“Our current balances, incorporating the quota increase of 2 mb/d included in the OPEC+ supply agreement, imply almost zero stock change in the first quarter of 2021. Unless the fundamentals change, the task of re-balancing the market will make slow progress,” it concludes.
Magellan, Enterprise and ICE unveil new futures contract
The Midland WTI American Gulf Coast contract is being launched in response to market interest for a Houston-based index with greater scale, flow assurance and price transparency. It will use the capabilities and global reach of ICE’s trading platform and is due to be launched by ICE by early 2022, subject to regulatory approval.
The quality specifications of the new futures contract will be consistent with a West Texas Intermediate crude oil originating from the Permian Basin with common delivery options at either the Magellan East Houston terminal or the Enterprise Crude Houston terminal. In support of this new futures contract, Magellan and Enterprise anticipate discontinuing their existing provisions for delivery services under the current futures contracts deliverable at each terminal once the new contract receives regulatory approval and is finalised.
“Magellan is pleased to join forces with Enterprise and ICE to offer this leading-edge joint futures contract,” said Aaron Milford, Magellan’s chief operating officer. “The new contract improves the transparency, flexibility and marketability of Midland WTI crude oil for Gulf Coast and export customers while maintaining industry-recognized quality and consistency.”
Harold Hamm, Chairman of the Board of Continental Resources and Founding Member of the American Gulf Coast Select Best Practices Task Force Association said on April 20 last year, when the Cushing, Oklahoma WTI contract traded down to -$38, it was a wake-up call to the oil industry that the storage constraints and landlocked location of the Cushing contract could no longer be ignored.
"I started the American Gulf Coast Select Best Practices Task Force to develop specifications for a new US light sweet crude oil price benchmark in the American Gulf Coast, and to advocate for its implementation and adoption as the main pricing point for the US oil markets," he said.
"We think a futures contract in the most interconnected market center in the country, with a widely accepted quality spec, which settles with guaranteed delivery of crude oil is an important new alternative for the industry. The task force has worked tirelessly to create a marker with transparency and liquidity that is waterborne for this modern era. The Midland WTI American Gulf Coast futures contract ... is a huge step forward for the industry and goes a long way to accomplishing the mission on which the task force has been working.”
Brent Secrest, Executive Vice President and Chief Commercial Officer of Enterprise’s general partner, said: “We are excited about this new crude oil futures contract, which features the combined strength of two extensive and complementary networks of midstream assets with a world-class trading platform to provide customers with greater supply reliability, flexibility and price transparency.
As the market hub for Permian Basin production, Houston represents the most logical choice for a new futures contract. Between Magellan and Enterprise, we offer access to virtually all of the export capacity in the Houston region, redundant connectivity to all area refineries, a robust Gulf Coast storage position and interconnects to all of the relevant supply pipelines, including those owned by third parties.”
Jeff Barbuto, Global Head of Oil Markets at ICE, said combining efforts with Magellan and Enterprise to establish a benchmark for pricing Midland quality WTI on the Gulf Coast allows it to offer the industry a futures contract with over four million bpd of supply capacity from Midland into Houston, access to both domestic and foreign demand, and nearly 60 million barrels of storage capacity in the Magellan and Enterprise systems.
"Traded on the same global platform as ICE Brent, Murban and Platts Dubai Crude Oil futures contracts, the new Midland WTI American Gulf Coast contract can also offer significant capital efficiencies to the industry and provide industry-leading quality that buyers have grown accustomed to in the Houston market," he said.
According to EIA forecasts, global consumption of petroleum and liquid fuels will average 97.7 million bpd for all of 2021, a 5.4 million bpd increase from 2020. US crude oil production averaged 11.2 million bpd in March, up 1.4 million on February.