Oil slipped with the rapid resurgence of COVID-19 in India and other countries casting a cloud around a return to normal consumption, even as OPEC+ projected a strong global demand recovery this year.

Futures in New York closed 0.4 per cent lower on Monday. While an OPEC+ technical committee raised its global oil demand growth forecast for 2021 to 6 million barrels a day and said most of the fuel inventory glut accumulated during the pandemic will have depleted by the end of this quarter, the group cautioned that virus cases in India, Brazil and Japan may have a negative impact on economic growth.

In India, signs of strain on the nation’s refiners are emerging. Indian Oil Corp. is looking to sell gasoline into the spot market -- a potential indication of weak domestic demand. The country’s refiners are being forced to postpone planned shutdowns for maintenance at some plants as workers are either fleeing or falling ill.

“India poses a significant risk to the global recovery, especially as more information comes out as to how widespread the virus is there,” said Gary Cunningham, director at Stamford, Connecticut-based Tradition Energy. While U.S. demand appears to be picking up, the market need to “see a continuation of the easing of Covid restrictions and the actual summer travel season kick into full gear.”

Despite signs of a recovery in demand in the U.S. and the U.K., the patchy rebound worldwide poses a risk to the Organization of Petroleum Exporting Countries and its allies, which have agreed to start adding more supply from May. OPEC Secretary-General Mohammad Barkindo told officials at the start of the online meeting that there are “positive signals” in the global economy, but also pointed to factors in the oil market that require ongoing vigilance.

“The news, particularly in the U.S., is looking a lot better, making people optimistic” on the demand recovery, said Michael Lynch, president of Strategic Energy & Economic Research. “But there’s still so much trouble in India, it’s uncertain how far prices can really go.”

The OPEC+ panel’s global demand growth estimate for 2021 is up from its projection of 5.6 million barrels a day last month, though in line with a report published by OPEC’s secretariat a couple of weeks ago. The committee sees global oil inventories declining by 1.2 million barrels a day this year on average.

Prices

• West Texas Intermediate for June fell 23 cents to settle at US$61.91 a barrel
• Brent for June settlement slipped 46 cents to end the session at US$65.65 a barrel

Among the worrying signs for India’s demand recovery, IOC has not yet issued an expected tender to purchase West African crude and Mangalore Refinery & Petrochemicals Ltd. has cut processing rates. The world’s third-largest oil importing country has been a particular area of concern for the oil market in recent days as it faces record daily coronavirus case counts and renewed restrictions in some parts of the country.

A full-blown global recovery from the pandemic could still be some ways out. While demand is improving, the recovery is so far not racing ahead, according to market data examined by Morgan Stanley. The figures point to an uneven recovery, with weaker data in Europe, India and Brazil.

Some crude traders have expressed concern about potentially diminishing demand for U.S. sweet crudes amid India’s virus surge, such as Permian grades which form the bulk of America’s oil exports. However, prices for those grades so far haven’t declined in response, with a wider WTI discount to Brent possibly garnering demand from other destinations in Asia where the pandemic has been brought under control. The South Asian country was the second largest buyer of American oil, according to the most recent U.S. Census Bureau data.

Other oil-market news:

• Libya’s state oil company lifted force majeure on an eastern port after it was allocated more than $220 million to resolve technical problems that have threatened a revival of the country’s energy industry.
• Egypt said it hopes to soon end a dispute over compensation regarding the huge container vessel that blocked the Suez Canal last month.
• Omani energy company OQ SAOC plans to tap the international bond market for the first time, as the Persian Gulf sultanate tries to bolster its finances by leveraging state-owned companies.
• Union leaders at Exxon Mobil Corp.’s Beaumont plant in Texas asked the oil giant to resume contract negotiations and not move forward with a lockout of more than 650 workers at the beginning of May.

--With assistance from Sheela Tobben and Alex Longley.