Global oil demand is expected to fall by a record amount this year as lockdown measures imposed to curb the COVID-19 pandemic bring the economy to a virtual halt, the International Energy Agency (IEA) said yesterday.
For this year, demand would fall by 9.3 million barrels per day (bpd), with this month alone dropping 29 million bpd from a year earlier to levels last seen in 1995, the IEA said in its latest monthly report.
However, measures taken to bolster the global economy and to reduce oil supply should allow a “gradual” recovery in the second half of the year, it said.
Photo: Reuters
“The global economy is under pressure in ways not seen since the Great Depression in the 1930s,” the IEA said, adding that even if restrictions are eased later this year, the fall in demand of 9.3 million bpd would erase “almost a decade of growth.”
On the positive side, authorities have responded with “radical steps,” launching massive stimulus programs costing trillions of US dollars to tide their economies through the worst of the crisis.
“We are also seeing measures being taken to tackle the oil market crisis,” the IEA said, referring to an OPEC deal with its OPEC+ allies at the weekend to cut production by an initial 9.7 million bpd.
“In light of the unprecedented depth of the crisis, the IEA has urged major consumers and producers to work together through the forum of the G20 to mitigate the impact on market stability,” it said.
G20 countries have agreed to support the OPEC+ cuts, which US President Donald Trump said could amount in all to 20 million bpd, an unprecedented reduction in output.
The IEA said that combined, the OPEC+ and G20 actions “won’t rebalance the market immediately.”
“But by lowering the peak of the supply overhang and flattening the curve of the buildup in stocks, they help a complex system absorb the worst of this crisis, whose consequences for the oil market remain very uncertain in the short term,” it said.
For this month, the IEA expects a fall in demand of up to 29 million bpd year-on-year, followed by 26 million bpd next month and 15 million bpd in June.
The IEA warned that “there is no feasible agreement that could cut supply by enough to offset such near-term demand losses.
“However, the past week’s achievements are a solid start and have the potential to start to reverse the buildup in stocks as we move into the second half of the year,” it said.
The IEA said that it was possible that if production falls sharply, reserves are built up and economies recover, then “the second half of 2020 will see demand exceed supply.”
“Indeed, our current demand and supply estimates imply a stock draw of 4.7 [million bpd] in the second half,” it said.
Oil industry capital expenditure this year is expected to fall by 32 percent to US$335 billion, the lowest level for 13 years, the IEA added.
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