Oil demand to fall year-on-year for first time since 2009

Oil demand to fall year-on-year for first time since 2009

BAKU, Azerbaijan, March 9

By Leman Zeynalova – Trend:

For the first time since 2009, oil demand is expected to fall year-on-year, by 90,000 barrels per day (kb/d), Trend reports citing the International Energy Agency (IEA).

“Covid-19 (coronavirus) has spread beyond China and our 2020 base case global oil demand forecast is cut by 1.1 million barrels per day (mb/d). In 1Q20, China’s demand falls by 1.8 mb/d y-o-y with global demand down 2.5 mb/d. We assume that oil demand returns to close to normal in 2H20,” said the IEA in its Oil Market Report.

While the situation remains fluid, the agency expects global oil demand to fall in 2020 – the first full-year decline in more than a decade – because of the deep contraction in China, which accounted for more than 80 percent of global oil demand growth in 2019, and major disruptions to travel and trade.

“Data are far from complete but, in the first quarter, the visible decline in transport, industrial and commercial activity points to a massive drop in global oil demand of 2.5 mb/d compared with the first quarter of last year. This includes an estimated annual decline of 4.2 mb/d in February, of which 3.6 mb/d was in China,” reads the report.

The immediate outlook for the oil market will ultimately depend on how quickly governments move to contain the coronavirus outbreak, how successful their efforts are, and what lingering impact the global health crisis has on economic activity, according to the IEA.

The agency proposes two scenarios for oil demand: a more pessimistic one in which global measures are less successful in containing the virus; and an optimistic case in which the virus is contained quickly.

“In our base case, the outbreak is brought under control in China by the end of the first quarter but spreads across many other countries beyond Iran, Korea, Japan, Singapore, the United States and Europe. Containment measures imposed in North America, Europe and elsewhere are expected to have a smaller impact on oil demand than those in China. However, demand from the aviation sector will continue to suffer from the contraction in global air travel,” the report says.

In the first quarter, China suffers the most with a year-on-year drop in oil demand of 1.8 mb/d as factories shut down and large-scale confinement measures curb transportation, said IEA.

“In the second quarter, as the situation in China improves, demand deteriorates in some other large economies, such as Japan and Europe. Overall, global oil demand in the second quarter is only slightly lower than a year ago. As we move through the second half of the year, demand picks up, growing by 1.1 mb/d compared with the second half of 2019. For 2020 as a whole, the magnitude of the drop in the first half leads to a decline in global oil demand of around 90,000 barrels per day, the first annual fall since 2009.”

IEA’s pessimistic low case assumes that countries already affected by the virus recover more slowly while the epidemic spreads further in Europe, Asia, and beyond.

“It takes longer to control the propagation of the virus, and the contraction in Chinese oil demand eases more slowly in March. European demand remains subdued in the third quarter, and demand in the United States grows at a slower pace. In this pessimistic case, global oil demand could decline by 730,000 barrels per day in 2020,” reads the report.

In a more optimistic high case, IEA assumes that the situation comes swiftly under control in China and the most serious contagion remains limited to a few countries, with no serious impact in most of Europe and North America. “In this context, governments do not need to take strong containment measures and use of transport remains closer to normal. In this case, global oil demand could grow by 480,000 barrels per day in 2020.”

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Follow the author on Twitter:@Lyaman_Zeyn

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