Oil demand projected to decline by record amount
Global oil demand will fall by a record-breaking amount this year, with government-implemented lockdowns aimed at halting the spread of the coronavirus having brought mobility “almost to a halt,” the International Energy Agency said on Wednesday.
In its monthly oil market report, the IEA said the world’s demand for crude will drop by an average of 9.3 million barrels a day in 2020 — a record — while demand in April will fall by 29 million barrels a day, to levels not seen in a quarter of a century.
“The global economy is under pressure in ways not seen since the Great Depression … businesses are failing and unemployment is surging,” the IEA said, adding that “activity in the transportation sector has fallen dramatically almost everywhere.”
The agency said it expects a 4.8 per cent fall in global economic growth this year.
The report comes days after the Organisation of the Petroleum Exporting Countries and allies including Russia agreed to historic output curbs aimed at mitigating the hit to global demand from the effects of the coronavirus pandemic. The US was also part of the pact, which is set to remove 9.7 million barrels a day of oil from global markets. The IEA forecasts that the agreement will contribute to a record-breaking 12-million-barrel-a-day drop in global oil supply in May.
Still, oil prices have fallen since the announcement of the deal, with billions of people remaining under lockdown for an indeterminate period of time.
“There is no feasible agreement that could cut supply by enough to offset such near-term demand losses,” the IEA said.
Even after April, the Paris-based organisation expects demand to be 26 million and 15 million barrels a day lower in May and June than it was in those months last year.
Brent crude — the global benchmark — had last fallen 2 per cent to $US29.01 ($45.76) a barrel, having plunged 56 per cent so far this year. West Texas Intermediate, the US bellwether, was last up 0.3 per cent at $US20.17 a barrel after moving back towards an 18-year-low on Tuesday, extending its 2020 drop to 67 per cent.
The agency echoed the traders and analysts who have said that even the deal that aims to hold back some 13 per cent of global crude supply will fail to prevent global storage facilities from being overwhelmed by a global glut.
With an estimated 1.2 billion barrels of storage available at the end of January, the IEA forecasts that global stocks could build at a rate of 11.9 million barrels a day in 2020s second quarter, hitting “operational capacity” limits by the middle of the year.
The amount of oil in floating storage — stored on vessels at sea — rose 27 per cent to 103.1 million barrels in March, the IEA said, adding “we may see a significant increase in floating storage in the coming few months as oil surpluses mount.”
Global refining activity is also expected to plunge, with throughput — refineries’ capacity for refining crude oil into products — forecast to drop more than 9 per cent this year, with “widespread run cuts and shutdowns in all regions” set to dramatically reduce the amount of oil refineries take in, the IEA said.
Despite this, stocks of refined products like gasoline and jet fuel are expected to build by 6 million barrels a day, with flights grounded and people stopping driving.