IEA softens outlook for drop in oil demand for 2020 but says risks remain

The Paris-based agency revised its annual oil demand forecast upwards by 700,000 bpd

US crude, which plunged below zero, trading in the single digits in April, ahead of the expiry of the benchmark’s May contract, over saturated storage, has since made a decent recovery. AFP

The International Energy Agency softened the drop in its global oil demand forecast for 2020, estimating a fall of 8.6 million barrels per day, and said the "heaviest demand destruction" seen over the past few months may be over.

The Paris-based agency revised its annual demand forecast up by 700,000 bpd. The agency cautioned that a resurgence in Covid-19 cases will be a continued risk for global demand. The IEA last month estimated a steeper annual decline of 9.3m bpd for 2020.

However, the gradual relaxation of restrictions on movement in parts of Europe and Asia is helping boost demand, the agency said.

"We estimate that from a recent peak of 4 billion, the number of people living under some form of confinement, at the end of May will drop to about 2.8 billion worldwide," the report said.

The boost to oil demand growth will be "modest at first", added the agency, as businesses start to reopen and people start commuting to work.

The IEA also revised its second-quarter projections upwards by 3.2m bpd, but noted demand was still sharply down by 19.9m bpd year-on-year.

The numbers offer a more hopeful assessment of demand fundamentals compared to the agency's earlier predictions. The IEA earlier projected a 23.1m bpd demand crunch for the second quarter and estimated that demand for April, could collapse by as much as 29m bpd – the lowest since 1995.

IEA executive director, Fatih Birol, termed the month when US oil futures plunged to as low as -$40 as 'Black April', but noted that the outlook for oil has significantly improved due to the collective action of the Opec+ alliance.

The group of producers led by Saudi Arabia and Russia is cutting 9.7m bpd from the markets in May and June. Saudi Arabia pledged to deepen its commitments by a further by 1m bpd, while Kuwait and the UAE also pledged additional cuts of 80,000 bpd and 100,000 bpd earlier this week.

While producers within the G20 fold also agreed in principle to support Opec+ in output curbs, they have not been explicit about quotas. However, the IEA estimates that output from the US and Canada was 3m bpd lower in April than at the start of the year. As production shut-ins continue due to a bearish oil market, the output decline could be as steep as 4m bpd by June.

The agency remained cautious about a resurgence in Covid 19 cases, which have so far infected 4.3 million globally, resulting in 297,371 deaths as of Thursday, according to the Johns Hopkins University tracker. The IEA also remained sceptical of Opec+ achieving full compliance among its members.

Iraq, Opec's second-biggest producer said on Wednesday it remained "fully committed to the terms of the Opec+ agreement".

Brent, the most widely used commodity benchmark was up 3.87 per cent trading at $30.32 per barrel on Thursday, while West Texas Intermediate was up 4.03 per cent at $26.31 per barrel at 1.35pm UAE time.

Global energy demand is set to fall 6 per cent this year, nearly seven times the decline following the 2008 global financial crisis, as the industry faces its biggest shock in 70 years from the coronavirus pandemic, the IEA said last month.