Global Oil Demand Will Drop Even More Than Previously Expected, IEA Predicts

Global Oil Demand Will Drop Even More Than Previously Expected, IEA Predicts

KEY POINTS

  • IEA projected that demand will plunge by 8.4 million barrels per day in 2020
  • IEA expects recovery in oil demand to decelerate markedly in the second half of 2020
  • The global oil supply increased by 1.1 million barrels per day in August

The International Energy Agency warned Tuesday prospects for global oil markets have become “even more fragile” as a new wave of the COVID-19 pandemic is weakening demand.

The Paris-based agency also reduced its demand forecasts for the year.

In its oil market report for September 2020, IEA said “resurgence of COVID-19 cases in many countries, local lockdown measures, continued teleworking and the weak aviation sector,” prompted it to lower demand estimates for the third quarter and fourth quarter by 100,000 barrels per day and 600,000 barrels per day, respectively.

For all of 2020, IEA projected that demand will plunge by 8.4 million barrels per day from last year. In its previous forecast, IEA predicted a fall of 8.1 million barrels per day.


Developments related to the ongoing pandemic “weigh heavily on economic activity,” IEA said, and “lead to lower expectations for a recovery in energy demand.”

“We expect the recovery in oil demand to decelerate markedly in the second half of 2020, with most of the easy gains already achieved,” IEA added. “The path ahead is treacherous amid surging COVID-19 cases in many parts of the world.”

IEA noted the global oil supply increased by 1.1 million barrels per day in August to 91.7 million barrels per day as the Organization of the Petroleum Exporting Countries and its allies relaxed their production cuts – but this figure remained 9.3 million barrels per day lower than a year ago.

Looking at the first seven months of this year, IEA observed, global demand was down by 10.5 million barrels per day over last year’s comparable period.

“As national lockdowns eased there was an initial sharp recovery in demand led by gasoline, but the curve has flattened out and it is becoming increasingly apparent that COVID-19 will stay with us for some time,” IEA said.

However, in 2021, IEA added, global oil demand is expected to climb by 5.5 million barrels per day, noting China “continues to recover strongly while India is showing renewed weakness.”

Brent crude prices were trading at about $40 per barrel Tuesday afternoon, having fallen from $45 in late August.

The IEA’s bleak assessment echoed recent projections by Singapore-based trading house Trafigura Group.

“We expect crude stocks to build into the year-end,” Ben Luckock, co-head of oil trading at Trafigura, told Bloomberg. “Headline oil prices were a bit higher than they needed to be: $40 a barrel Brent is more sensible, and my gut feeling is that we will drift into the high $30s.”

Luckock added: “This market looks worse in a couple of months than now. I think lower oil prices are warranted.”

At S&P Global Platts’ Asia Pacific Petroleum Virtual Conference on Monday, analysts warned that another wave of COVID-19 will further pressure demand.

“A lot of us, we’re talking about another demand shock. It’s like fighting the last battle,” said Ed Morse, managing director and global head of commodities research at Citi. “We’re seeing countries that are overly dependent on oil earnings, that can’t pay for the civil service, can’t pay for healthcare…education…security. The rate of concern we’re going to see … dipped in demand and the gigantic build in inventories … I think the biggest worry is what happens to the fragility of the oil producing countries.”

Martin Fraenkel, president of S&P Global Platts, stated at the conference: “I think it is still all about the demand, the demand destruction this year has been extraordinary.”