Expectations that global oil demand will rise by millions of barrels daily from the summer onwards have been fueling the recent price rally but the oil market is beginning to lift the lid on the black box of Indian oil demand, and doesn’t like the demand destruction it sees.

The total demand for Indian oil products such as gasoline, diesel, and jet fuel, will plunge below the 4 million bpd threshold in May 2021 as new Covid-19 restrictions pinch mobility.

Indian oil demand below 4 million bpd is cause for concern and far below the pre-virus levels of about 5 million bpd, but still rather resilient if compared to the drop to 3.1 million bpd back in April 2020.

India jitters are currently stopping oil prices from rising further but, with June-delivery barrels now in focus, prices may increase on seasonal oil appetite additions and as the removal of Covid-19 restrictions in most of the world will lend more demand support.

Despite the demand downside in India, it’s very likely that oil will claw back towards $70 per barrel in the coming months as the global demand uptick tips the scale to positive.

Between now and the end of June, Rystad sees oil demand jumping by at least 3 million bpd, which will offset the India snarl, as well as be plenty to accommodate extra OPEC+ barrels. 

Oil demand is at the top of every trader’s radar but there is also an abundance of supply risks, which this week actually skew towards upside price potential, as a good amount of Libyan and Canadian barrels are at risk.

Libya is steadily losing stable political ground, which has forced oil production below 1 million in April as the country’s cash crunch has resulted in some production shutting down.

In Canada, the wave of new virus strains has resulted in more than 700 cases at oil sands camps in Alberta, which will translate into oil being pulled off the market as many operators opt to extend maintenance turnarounds to cut down on the risk of spreading infection.

In the US, we expect drilling to expand steadily in the coming weeks as operators add rigs to maintain output volumes.

Last but not least, Iran is also keeping prices at check.

If there is meat on the bone of the Iranian chief negotiator’s statements over the weekend and oil sanctions are lifted soon, this will be a breakthrough that will bring more oil supply to the market quicker than most traders expected, and this prospect is curbing bullish enthusiasm.