A glut in global oil markets is being worked off as the world economy begins to recover from the Covid-19 pandemic and as OPEC and its allies restrain production, the IEA said Wednesday.

The International Energy Agency raised its expectations for the recovery in oil demand after the International Monetary Fund increased its forecasts for global growth this year.

"This improved outlook, along with stronger prompt indicators, has led us to revise up our 2021 global oil demand growth forecast," said the Paris-based body with advised oil consuming nations.

It now expects world oil demand to rise by 5.7 million barrels per day (mbd) to 96.7 mbd, following last year's drop of 8.7 mbd.

The OPEC oil cartel on Tuesday also raised its 2021 demand forecast to 96.5 mbd.

Oil demand was hammered last year as many countries shut down swathes of their economies in a bid to slow the spread of Covid-19.

That caused a glut in supplies, but the so-called OPEC+ group that includes heavyweight producer Russia, sharply cut output last year to reduce that and counter the plunge in prices that briefly saw some turn negative as storage ran short.

Demand for crude is expected to recover much, but not all of the slump it experienced in 2020, as the global economy revs back up this year
Demand for crude is expected to recover much, but not all of the slump it experienced in 2020, as the global economy revs back up this year AFP / Mark RALSTON

That glut appears to have been largely worked off.

The IEA said preliminary data suggest that OECD oil stocks held largely steady in March, following seven consecutive months of draws, and were heading close to their five-year average.

OPEC+ has been slowly increasing output since the beginning of the year and at the beginning of April signalled it would lift output by more than 2 mbd in the coming three months in the face of an expected rise in demand.

While the first quarter was somewhat disappointing as many European and several major emerging economies saw a resurgence of Covid-19, global growth is expected to pick up as vaccination campaigns begin to have an impact.

IEA sees the global oil market changing "dramatically in the latter half of this year as nearly 2 mbd of extra supply may be required to meet expected demand growth."

But with OPEC+ still having plenty of additional production capacity that it can bring back on line, the IEA does not see a supply crunch developing.

"The bloc's monthly calibration of supply may give it the flexibility to meet incremental demand by ramping up swiftly or adjusting output lower should the demand recovery fail to keep pace," it said.

Coronavirus