Global oil demand to dip to lowest level since 2011
BAKU, Azerbaijan, Feb.27
By Leman Zeynalova – Trend:
Global oil demand is expected to dip to lowest level since 2011 with the coronavirus outbreak, Trend reports with reference to the International Energy Agency (IEA).
"The consequences of coronavirus (Covid-19) for global oil demand will be significant. Demand is now expected to contract by 435,000 barrels per day (kb/d) in 1Q20, the first quarterly decrease in more than a decade. For 2020 as a whole, we have reduced our global growth forecast by 365 kb/d to 825 kb/d, the lowest since 2011," IEA said in its Oil Market Report.
Growth in 2019 has been trimmed by 80 kb/d to 885 kb/d on lower-than-expected consumption in the countries of the Organization of Economic Co-operation and Development (OECD).
IEA said that the impact of Covid-19 for oil prices have been sharp: Brent values fell by about $10/bbl, or 20 percent, to below $55/bbl.
"Before Covid-19 came along, the market was already nervous in anticipation of a supply overhang of 1 mb/d in the first half of 2020 due to continued expansion in the US, Brazil, Canada, and Norway. Even threats to security of supply, e.g. tension in Iraq, a 1 mb/d fall in Libyan oil production, and force majeure declared for some Nigerian cargoes, had little impact on prices. Now that the demand outlook has weakened, prices have moved significantly down," reads the report.
From the point of view of the producers, before the Covid-19 crisis the market was expected to move towards balance in the second half of 2020 due to a combination of the production cuts implemented at the start of the year, stronger demand and a tailing off of non-OPEC supply growth, according to IEA.
"Now, the risk posed by the Covid-19 crisis has prompted the OPEC+ countries to consider an additional cut to oil production of 0.6 mb/d as an emergency measure on top of the 1.7 mb/d already pledged."
Following an extraordinary meeting of the Joint Technical Committee (JTC) held in Vienna, from 4-6 Feburary 2020, the JTC has recommended extending voluntary production adjustments under the ‘Declaration of Cooperation’ process until the end of 2020 and to proceed with an additional adjustment until the end of the second quarter.
The JTC’s recommendations come in response to the fact that the coronavirus epidemic has had a negative impact on oil demand and oil markets.
The Committee also recommended a further adjustment in production until the end of the second quarter of 2020.
"Lower oil prices, if sustained, are also bad news for highly responsive US oil companies, but we are unlikely to see an impact on output growth until later in the year. The effect of the Covid-19 crisis on the wider economy means that it will be difficult for consumers to feel the benefit of lower oil prices," said IEA.
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