The drop in demand for oil for the current year will be the steepest in history, predicted the International Energy Agency on Tuesday. The IEA said that “a more stable footing” over the coming months could be reached by the market.
There has been a 40 per cent drop in oil prices sop far this year because of lockdown measures implemented to curb the spread of the novel coronavirus pandemic resulted in a never before seen drop in demand for oil.
The demand for oil during the second quarter of the current year, when the global economy was hit hard by the pandemic, dropped by 17.8 million barrels per day lower when compared to the same period last year, the IEA said. While that level of drop in demand for oil was lower than what the IEA had previously predicted, it was still unprecedented.
Demand was expected to fall by 8.1 million barrels per day in 2020, said the Paris-based energy agency on Tuesday in its closely-watched oil market report, and expected a growth in demand of 5.7 million barrels per day in 2021.
The estimates of the IEA suggest that the expected drop in demand for oil this year will be the largest ever drop in history while the expected growth in demand in 2021 will also be the largest one-year jump ever recorded “as activity begins to return to normal across vast swathes of the economy,” the IEA report said.
Because of the stronger-than-anticipated deliveries during the coronavirus lockdown, the IEA’s forecast for oil demand in 2020 is at 91.7 million barrels per day which is almost 500,000 barrels per day more than what eh organization had expected to be in May.
“In sporting terms, the 2020 oil market is now close to the half time mark,” the IEA said. “So far, initiatives in the form of the OPEC+ agreement and the meeting of G20 energy ministers have made a major contribution to restoring stability to the market.”
“If recent trends in production are maintained and demand does recover, the market will be on a more stable footing by the end of the second half. However, we should not underestimate the enormous uncertainties,” the group added.
An agreement earlier this month for an extension of the record output cuts of 9.7 million barrels per day till July end was made between the oil cartel OPEC and non-OPEC allies — an oil producer group sometimes referred to as OPEC+.
One of the crucial aspects of the deal is the insistence by some of the largest members of the group that those oil producers that had not cut production previously should make up the gap by making additional cuts in production I the next few weeks.
This move has helped to shore up global oil prices even in the face of continued threat of persistence of demand drop from a possible second and a third wave of the pandemic across the globe
Here were three major factors currently that are driving a modest oil market recovery which included a strong exit from lockdown measures by China, a “very good” compliance among OPEC+ members and production decline among oil producers in the United States, Canada and other G-20 countries, said IEA Executive Director Fatih Birol.
“All these three things coming together tells us that the gradual recovery of the oil market continues,” he added.
(Adapted from CNBC.com)