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IEA sees lower oil demand in 2020, 2021 amidst COVID-19

Oil prices

The International Energy Agency (IEA) lowered its global oil demand forecasts for the first time in several months on Thursday, as a result of the damaging effect of the coronavirus disease.

In its August report, IEA said it now sees global oil demand for 2020 at 91.1 million barrels per day, reflecting a fall of 8.1 million barrels per day year-on-year.

“We reduce our 2020 forecast by 140 kb/d, the first downgrade in several months, reflecting the stalling of mobility as the number of COVID-19 cases remains high, and weakness in the aviation sector.

“China’s oil demand is recovering strongly, up 750 kb/d y-o-y in June. We have revised down our 2021 global demand estimate by 240 kb/d to 97.1 mb/d [million barrels a day], mainly due to aviation sector weakness,” the report said.

Historic losses

This revised forecast is 140,000 barrels per day lower than the IEA’s previous projection.

The agency also revised down its 2021 global oil demand estimate by 240,000 barrels per day to 97.1 million barrels per day, with jet fuel demand identified as the “major source” of weakness.

The report comes shortly after the world’s largest oil and gas firms reported historic losses in the second quarter as coronavirus lockdown measures led to an unparalleled demand shock in energy markets.

Earlier this year, the IEA’s executive director, Fatih Birol, said 2020 may well come to represent the worst year in the history of oil markets.

“Recent mobility data suggests the recovery has plateaued in many regions, although Europe, for now, remains on an upward trend,” the IEA said in its release on Thursday.

“For road transport fuels, demand in the first half of 2020 was slightly stronger than anticipated, but for the second half we remain cautious and the upsurge in COVID-19 cases has seen us downgrade our estimates, mainly for gasoline.”

International benchmark Brent crude futures traded at $45.29 on Thursday morning, more than 0.3% lower, while US West Texas Intermediate futures stood at $42.52, down around 0.4%.

Oil prices have slipped more than 25% year-to-date.

Pandemic’s “long shadow”

The coronavirus outbreak “has cast a long shadow” over oil demand, the IEA said in its oil market report.

The Paris-based energy agency said aviation and transport, both essential components of oil consumption, continued to struggle following the passing of the first wave of the pandemic.

It estimated that aviation activity, measured in passenger kilometres, was down by roughly two-thirds from normal levels in July, typically one of the peak months for air traffic.

Meanwhile, mobility data for July showed that fuel demand remained below seasonal norms in Europe and North America.

Those same figures were “much worse” in regions where the virus is continuing to spread fast, the IEA said, highlighting Latin America and India as two examples.

Delicate situation

The IEA said global oil supply appeared set to fall by 7.1 million barrels per day in 2020 and rise by 1.6 million barrels per day next year.

It added that oil supply rose by 2.5 million barrels per day to reach 90 million barrels per day in July after Saudi Arabia ended its voluntary production cut, the United Arab Emirates exceeded its OPEC+ target and US production started to recover.

“Our balances show that in June demand exceeded supply, and for the rest of the year there is an implied stock draw,” the IEA said.

“However, ongoing uncertainty around demand caused by COVID-19 and the possibility of higher output means that the oil market’s rebalancing remains delicate.”

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