Abu Dhabi: The International Energy Agency (IEA) on Wednesday forecasted oil demand to drop by 9.3 million barrels per day (bpd) year-on-year in 2020, with demand taking a big hit in the face of global lockdowns trying to contain the spread of COVID-19.
In its monthly oil market report, the IEA also forecasted oil demand to drop by as much as 29 million bpd in April, followed by May with demand loss at 26 million bpd with oil demand showing no short term signs of recovering as both air and land movement continue to be restricted.
The fall in demand, which has slashed oil prices, has led to Opec+ announcing a major deal in curtailing production, with producers agreeing to cut over 10 million bpd from markets.
Despite the announced cuts, oil prices have yet to see any rebound and instead went down, highlighting the oil market’s current volatility. Brent was selling at $28.31 with West Texas Intermediate on $19.53 at 12:35pm UAE time.
“The measures announced by Opec+ and the G20 countries won’t rebalance the market immediately. But by lowering the peak of the supply overhang and flattening the curve of the build-up in stocks, they help a complex system absorb the worst of this crisis,” the IEA said.
“In June, the gradual recovery likely begins to gain traction, although demand will still be 15 million bpd lower than a year ago. There is no feasible agreement that could cut supply by enough to offset such near-term demand losses.
“For 2Q20 (second quarter of 2020), demand is expected to be 23.1 million bpd below year-ago levels. The recovery in 2H20 (second half of 2020) will be gradual; in December demand will still be down 2.7 million bpd year-on-year,” the report said, highlighting how oversupply will continue to remain an issue throughout the year, even as the market recovers.
Lowest capex in 13 years
Commenting on how this will impact the oil industry, the IEA said that capital expenditure by the industry would be at its lowest in the last 13 years.
“Global capital expenditure by exploration and production companies in 2020 is forecast to drop by about 32% versus 2019 to $335 billion, the lowest level for 13 years.
“This reduction of financial resources also undermines the ability of the oil industry to develop some of the technologies