Oil retreats further as demand fears set in

Oil prices dropped for a second day on Friday, pulling further back from a one-year high after Organisation of the Petroleum Exporting Countries (OPEC) again lowered its demand forecast and the International Energy Agency said the market remains oversupplied.

Brent crude was down $0.34, or 0.6%, at $60.80 a barrel by 1051 GMT, having dropped 0.5% in the previous session. US oil was down $0.39, or 0.7%, at $57.85 after falling 0.8% on Thursday.

Both contracts were still on course for weekly gains, however.

Oil closed on Wednesday at its highest since January 2020 after coming close to a record-setting run of consecutive daily gains.

Prices have risen in recent weeks partly owing to oil production cuts by OPEC and other producers in the group known as OPEC+.

This week, however, OPEC said it expects global oil demand to recover more slowly than thought in 2021, trimming its forecast by 110,000 barrels per day (bpd) to 5.79 million bpd.

The International Energy Agency (IEA) said that oil supply was still outstripping global demand, though Covid-19 vaccines are expected to support demand recovery.

“The [IEA] report paints a more pessimistic picture than market participants have presumably been envisaging given the current high prices,” Commerzbank said.

Demand data from the world’s biggest oil importer also paints a bleak picture. The number of people who travelled in China ahead of Lunar New Year holidays plummeted by 70% from two years ago as coronavirus restrictions curbed the world’s largest annual domestic migration, official data showed.

ABN Amro revised its 2021 Brent oil prices forecast slightly higher to $55 a barrel but warned of demand headwinds.

“The biggest recovery in demand will have to come from the aviation sector,” the bank said. “Especially for aviation, we do not yet see a major recovery this year.”