Global oil demand is set to contract in 2020 for the first time in more than a decade. This is so as global economic activity stalls due to the coronavirus, the International Energy Agency said on Monday. The downward revision came as oil prices dropped. This is the biggest hit since the 1991 Gulf War after Saudi Arabia launched a bid for market share following the collapse of an output pact with Russia.
The energy watchdog said it expected oil demand to be 99.9 million barrels per day (BPD) in 2020. This, therefore, lowers its annual forecast by almost 1 million BPD. This is the first time demand will have fall since 2009.
The Paris-based IEA said in its medium-term outlook report that in an extreme scenario where governments fail to contain the spread of the coronavirus, which has affected over 100,000 people, consumption could drop by up to 730,000 BPD.
The virus has led to a sharp drop in industrial activity particularly in China and other Asian economies. Italy is one of the worst affected places outside of China. The virus has led to a slowdown in demand for ground and air transport.
IEA Executive Director Fatih Birol urged producers to “behave responsibly” in the face of the coronavirus crisis. After a deal on output restraint between OPEC, Russia and other producers collapsed last week, sending oil prices plunging. “At such a time of uncertainty and potential vulnerability to the world economy… playing Russian roulette with the oil markets may well have grave consequences,” Birol told reporters.
Saudi Arabia, OPEC’s biggest producer, signaled it would pump more oil. This will send oil prices down to levels that will place a strain on its budget. Birol said the low oil prices could put many major crude producing nations such as Iraq, Angola, and Nigeria under “huge” financial strain and fuel social pressures. The IEA said that, following a shock to demand in 2020, oil consumption was likely to bounce back. It is said that oil will rise by 2.1 million BPD in 2021.
After that, it said growth was set to decelerate to 800,000 BPD by 2025 due to slower growth in demand. This is because of government’s policies to improve car engine efficiency and push to cut greenhouse gas emissions. “The coronavirus crisis is adding to uncertainties the global oil industry faces as it contemplates new investments and business strategies,” Birol said.
While oil demand is set to gyrate sharply, the IEA kept its forecast for global oil supplies largely unchanged. Production capacity is set to grow by 5.9 million BPD by 2025, marginally outpacing demand. Production growth is set to come mostly from expansion in the U.S. shale output. And also from the rising output in Brazil, Guyana, and Canada, the IEA said.
Expansion of crude oil production in Iraq and the United Arab Emirates would offset declines in Libya and Venezuela so that output from the Organization of the Petroleum Exporting Countries would rise by 1.2 million BPD by 2025.