Global oil demand is expected to drop this quarter for the first time in more than a decade as COVID-19 batters China’s economy, the International Energy Agency (IEA) said.
The new estimate shows that oil markets face a significant surplus, despite the latest production cuts by OPEC and its partners.
Crude last week sank to a one-year low of less than US$50 a barrel and the effects of COVID-19 would be felt throughout the year, the agency said.
“Demand has been hit hard by the novel coronavirus and the widespread shutdown of China’s economy,” the Paris-based IEA said. “The crisis is ongoing and at this stage, it is hard to be precise about the impact.”
Global fuel consumption, which had previously been expected to grow by 800,000 barrels a day during the first quarter, compared with a year earlier, would instead contract by 435,000 a day, the IEA said in a monthly oil market report.
For this year as a whole, COVID-19 is expected to curb annual growth in global consumption by about 30 percent to 825,000 barrels a day, the lowest since 2011. The effects would be more significant than those of the 2003 SARS outbreak, because of China’s increased importance and integration within the global economy.
The COVID-19 outbreak has closed businesses and prompted the quarantine of tens of millions of people in China, the world’s biggest crude importer.
China accounted for about 75 percent of last year’s oil-demand growth, said the IEA, which advises most major economies.
US crude futures this year have fallen 17 percent, as traders assessed the effects of COVID-19.
Consumers are unlikely to benefit from the drop in fuel prices, because COVID-19 would inflict damage on the wider economy, the IEA said.
The outbreak has prompted Saudi Arabia, the world’s largest oil exporter, to push its allies in OPEC and beyond to consider an emergency meeting and further production cuts, but Russia, the kingdom’s most important partner in managing oil supplies, has so far resisted the initiative.
Even though the group launched new supply curbs at the start of this year, the slump in demand threatens markets with a surplus of about 1.7 million barrels a day during the first quarter and 560,000 in the second.
Last month, OPEC was pumping the least crude since the 2008-2009 financial crisis, the IEA said.
The OPEC+ alliance had faced an oversupply in the first half of this year, because of the ongoing output surge from US shale-oil drillers, the agency said, adding that the industry is likely to remain resilient against the price slump until later in the year.
Given the abundance of supply, disruptions in OPEC members such as Libya and Nigeria are having little effect on prices, the agency added.
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