LONDON • Oil prices rose yesterday, with Brent crude going above US$40 a barrel, as the International Energy Agency (IEA) increased its oil demand forecast for this year and amid record supply cuts.

Brent crude rose 1.94 per cent to hit US$40.49 a barrel by 0918 GMT. US oil gained 1.64 per cent to US$37.73 a barrel.

In its monthly report issued yesterday, the IEA forecast oil demand at 91.7 million barrels per day (bpd) this year, 500,000 bpd higher than its estimate in last month's report, citing higher than expected consumption during the lockdowns.

But the agency also warned that a fall in air travel due to the coronavirus means the world will not return to pre-pandemic demand levels before 2022.

Oil supplies last month, the IEA said, plunged by nearly 12 million bpd, with the Organisation of the Petroleum Exporting Countries and its allies including Russia - a grouping known as Opec+ - reducing their output by 9.4 million bpd.

This means that Opec+ hit 89 per cent compliance with their agreed cuts last month, the IEA said.

Opec+ had agreed this month to extend production cuts of 9.7 million barrels per day through next month. The group also called on members that have not been complying to make up their commitments with extra cuts later.

Iraq, which had one of the worst compliance rates among the major producers, has already made deep cuts to its crude supplies to Asia next month.

Elsewhere, shale producers in the United States are also cutting back on drilling amid the collapse in demand for oil.

Production from seven major American shale formations is likely to fall to close to a two-year low of 7.63 million bpd by next month, the US Energy Information Administration said on Monday.

But concerns about a second wave of lockdowns from rising coronavirus infection rates weighed on the market.

Coronavirus cases rose to more than eight million worldwide by Monday, with the US and China dealing with fresh outbreaks.

But some observers said they did not expect to see any return to the stringent lockdowns seen at the start of the year.

"If the world treats a second Covid-19 wave like in the first half of the year, then we are in for a demand reduction that was not in the initial planning," said Mr Bjornar Tonhaugen, head of oil markets at Rystad Energy.

A White House plan to spend nearly US$1 trillion (S$1.4 trillion) on infrastructure could be positive for prices if it materialises.

"Massive stimulus around the world will stimulate a rebound," said Mr Bjarne Schieldrop, chief commodities analyst at SEB Research. "Equities higher, oil price higher. All on the up."

In a sign that US fuel demand may be improving, petrol futures are once again rallying when massive oil refineries shut down.

REUTERS, BLOOMBERG