According to OPEC's recently released Monthly Oil Market Report (MOMR) for Feb-2021, global oil demand is estimated to have declined by 9.7% y/y (or by 9.7mb/d) to 90.3mb/d in FY-2020 from 99.9mb/d in FY-2019. On the positive, oil demand continued to recover from the Q2-2020 slump, climbing to 92.1mb/d and 94.0mb/d in Q3-2020 and Q4-2020, respectively from 82.8mb/d in Q2-2020.
The overall contraction in FY-2020 was clearly due to the demand destruction caused by the restrictive measures put in place to control the spread of the Covid-19 in 2020.
Furthermore, the MOMR for Feb-2021 paints an optimistic picture for oil demand, with OPEC forecasting oil demand to grow by 5.8mb/d y/y to 96.1mb/d in FY-2021. However, demand is not expected to recover to pre-pandemic levels of 99.9mb/d according to OPEC's forecasts for FY-2021.
OPEC's forecasts are driven by the recovery in demand for transportation fuels, albeit weak in H1-2021 as Covid-19 cases remain elevated while the rollout of vaccinations is slower than anticipated.
That said, OPEC expects the recovery to be sharper in H2-2021 as vaccinations garner momentum and increase transportation fuels demand. OPEC's expectations are reflected in its H1-2021 forecast oil demand of 94.6mb/d compared to 97.5mb/d in H2-2021.
The recovery in demand bodes well for Nigeria's economy regarding economic growth, government revenue and FX inflows. The improved demand for crude oil would give OPEC further headroom to raise production quotas, which is significant for Nigeria's oil production. The improved output consequently supports increased FX flows as well as boosting the Federal government's revenue base.