An easing of COVID-19 lockdown measures and a spectacular reduction in output are helping the oil market steady after a “Black April,” the International Energy Agency (IEA) said yesterday.
“Since then, the outlook has improved somewhat and prices, while still far below where they were before the start of the COVID-19 crisis, have rebounded from their April lows,” it said in its latest monthly report.
The IEA said the focus in its review was the “demand destruction on a historic scale” caused by the pandemic, which slashed consumption just as OPEC kingpin Saudi Arabia and Russia, its erstwhile OPEC+ group ally, started a price war and pumped even more crude into an already flooded market.
The result — prices at more than 20-year lows, plunging at one point to an unprecedented minus-US$40 a barrel, before Saudi Arabia and Russia finally called a halt and agreed to overall production cuts of 9.7 million barrels per day.
Recent price recovery is due to “the easing of lockdown measures and — more important — steep production declines in non-OPEC countries alongside the commitments made by the OPEC+ agreement,” the IEA said.
“We estimate that from a recent peak of 4 billion, the number of people living under some form of confinement at the end of May will drop to about 2.8 billion worldwide,” it said.
Businesses were “starting to reopen gradually and people are returning to work, which will provide a boost to oil demand, albeit a modest one at first,” the IEA said.
On this basis, it now expected global oil demand this year to fall by 8.6 million barrels per day (mbd), an improvement on its estimate last month of a fall of 9.3 million barrels per day.
On the supply side, “market forces have demonstrated their power and shown that the pain of lower prices affects all producers,” the IEA said.
“We are seeing massive cuts in output from countries outside the OPEC+ agreement and faster than expected,” it said.
“This group, led by the United States and Canada, saw output in April three mbd lower than at the start of the year. In June, that drop could reach four mbd, with perhaps more to come,” it said.
If the OPEC+ agreement is fully respected, “global oil supply is set to fall by a spectacular 12 mbd in May to a nine-year low of 88 mbd,” it said.
If all the output cuts are implemented, Saudi Arabia next month would pump “an extraordinary 4.4 mbd below April’s record level,” the IEA said.
However, over the year, it will be the US that would cut output the most, by 2.8 million barrels per day compared with the end of last year, the IEA said.
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