WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange edged higher Tuesday morning, drawing support from an overnight slump in the U.S. dollar index and higher equities even as traders gauge the effect of fresh COVID-19 restrictions across major metropolitan areas in the United States and European Union that spell weaker demand for refined fuels heading into the Christmas holidays.
International Energy Agency this morning reminded markets that the short-term outlook for oil demand in countries that are part of the Organization for Economic Cooperation and Development will continue to contract in the fourth quarter against year ago, with the Paris-based agency estimating oil demand in Europe will fall below the third quarter consumption rate in the fourth quarter amid renewed lockdown measures.
Cities including London, New York and Los Angeles have recently announced renewed shutdowns to slow the winter surge in coronavirus infections, undercutting already sluggish economic activity and mobility across large swaths of metropolitan areas. For the fourth quarter, OECD oil demand is projected to be 5.3 million barrels per day (bpd) less compared to 2019 which brings the global demand estimate for the year to 91.2 million bpd, down 8.8 million bpd year on year.
For 2021, the Paris-based agency downgraded its demand forecast by 170,000 bpd for annualized growth of 5.7 million bpd, driven by protracted weakness in aviation sector and the delayed effect of vaccine programs in OECD countries. Interestingly, the outlook includes a 400,000-bpd cut to its demand outlook for the second quarter, when analysts had expected the expansion of economic activity and fuel demand around the world to pick up pace. The shortfall in fuel consumption for 2021 is projected to be around 3.1 million bpd versus 2019 levels.
IEA's softer projections follow downbeat demand expectations from Organization of the Petroleum Exporting Countries that slashed 350,000 bpd from its 2021 forecast due to lingering uncertainty around the pandemic's impact on OECD transportation fuels and the labor market. OPEC now sees global oil demand in 2021 to average 96.89 million bpd, down 2.87 million bpd seen in 2019.
Both organizations, however, single out China as the bright spot for global oil demand, with the recovery in the second half of 2020 attributed almost entirely to China's strong rebound following lockdown measures. Growth in the world's second largest economy once gain broadened in November, with overnight data from the Bureau of National Statistics showing retail sales surged 5%, marking the fourth successive month of expansion. Industrial production, a gauge of manufacturing, mining and utilities output, grew 7% from a year ago.
"China's production and demand continued to rebound steadily in the fourth quarter, the economic growth is expected to continue to accelerate compared to the third quarter," said bureau spokesman Fu Linghui. "In the next stage, China is expected to become the only country with a positive growth for the whole year among the world's major economies."
In early trading, NYMEX January West Texas Intermediate futures advanced 28 cents to a $47.26 per barrel (bbl) nine-month high on the spot continuous chart and the February Brent contract on ICE climbed 24 cents to near $50.52 bbl. NYMEX January ULSD futures added 0.73 cents to $1.4617 gallon and January RBOB futures climbed 0.91 cents to $1.3274 gallon
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