IEA still sees record 2020 oil demand fall but easing lockdowns helping

Crude oil tanker Maran Cassiopeia in the waters off Tuas, Singapore, July 15, 2019. (Reuters)
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Updated 14 May 2020

IEA still sees record 2020 oil demand fall but easing lockdowns helping

  • Demand is expected to fall by 8.6 million barrels per day (bpd), the IEA said in its monthly report, raising its estimate by 690,000 bpd
  • In revising its forecast, the energy watchdog cited stronger-than-expected mobility in some European countries and the US

LONDON: Oil demand is still set for a record fall in 2020, the International Energy Agency (IEA) said on Thursday, but it trimmed its forecast for the drop citing easing lockdown measures.
Demand is expected to fall by 8.6 million barrels per day (bpd), the IEA said in its monthly report, raising its estimate by 690,000 bpd compared to last month.
Around 2.8 billion people will be living under confinement measures aimed at containing the novel coronavirus at the end of May, down from 4 billion in April, the Paris-based IEA said.
In revising its forecast, the energy watchdog cited stronger-than-expected mobility in some European countries and the United States as well as higher Chinese demand as it recovers from the virus outbreak.
“Economic activity is beginning a gradual-but-fragile recovery. However, major uncertainties remain. The biggest is whether governments can ease the lockdown measures without sparking a resurgence of COVID-19 outbreaks,” it said.
Led by the United States and Canada, producers outside the Organization of the Petroleum Exporting Countries and allies like Russia, the so-called OPEC+ grouping, saw a fall in April output by 3 million bpd compared to the start of the year.
The IEA predicted that by the end of 2020, the United States would be the biggest single contributor to supply reductions, down 2.8 million bpd year on year.
“It is on the supply side where market forces have demonstrated their power and shown that the pain of lower prices affects all producers,” the IEA said.
But IEA director Fatih Birol said on a call with reporters that recently announced output cuts by major Gulf Arab producers would likely not be enough to balance global markets.
“I am happy to see Saudi Arabia, the Emirates and Kuwait — on top of their existing commitments — are now going to make further cuts. I do welcome them. Whether or not this is enough, I do not think so,” Birol said on the call after the IEA released its monthly report.
“We are seeing the early signs of a start of recovery, but it is far too early to say we are soon going to reach the rebalancing of the markets,” he added, renewing a call to OPEC+ countries to consider further cuts.
The shortage of oil storage capacity worldwide and especially in the United States has addled markets and weighed on crude prices in recent weeks, but the IEA predicted a recovery was likely approaching.
It predicted 5.5 million bpd of a “massive” implied increase in crude oil stocks of 9.7 million bpd in the first half of the year would be drawn down in the second half, assuming no resurgence of the virus and full commitment to production cuts.


Oil surges on hopes of new deal on output cuts

Updated 02 June 2020

Oil surges on hopes of new deal on output cuts

  • Brent price has doubled in five weeks
  • OPEC talks may be brought forward

DUBAI: Oil prices surged toward $40 a barrel on Monday as hopes rose for an early agreement to extend the big production cuts agreed by Saudi Arabia and Russia under the OPEC+ alliance.

Brent, the global benchmark, jumped by more 9 percent to nearly $39, continuing the surge that has doubled the price in five weeks — the best performance in its history. It recovered after record supply cuts agreed between the 23 countries of the OPEC+ partnership, and enforced cuts in US shale oil.

DME Oman crude, the regional benchmark in which a lot of Saudi Aramco exports are priced, rose above $40 a barrel for the first time since early March.

Market sentiment was buoyed by the possibility that the Organization of Petroleum Exporting Countries would agree with non-OPEC members to extend the cuts for a longer period than was agreed in April.

Oil analysts expect OPEC to fast track a “virtual” meeting to formally agree to maintaining cuts at the record 9.7 million barrels a day level. The meeting was scheduled for June 9, but bringing it forward would allow producers more time to set pricing levels.

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An official with one OPEC delegation told Arab News there was consensus among the 23 OPEC+ members for the new date, which could be as early as June 4. The meeting will also consider how long the current level of cuts would be maintained. Some OPEC members want it to run to the end of the year, other producers would prefer a two-month extension.

Omar Najia, global head of derivatives with trader BB Energy, told a forum run by Gulf Intelligence consultancy: “I’d be amazed if OPEC did not extend the higher level of cuts. As long as Saudi Arabia and Russia continue saying nice things to each other I’d expect the rally to continue.”

A Moscow source close to the oil industry said energy officials there had come to the conclusion that “the deal is working” and it was important to keep prices at an “acceptable” level.

Sentiment was also affected by a comparatively high level of compliance with the new cuts, running at about 75 percent among OPEC+ members, with only Iraq and Nigeria noticeable under-compliers.

Robin Mills, chief executive of Qamar Energy, said: “That’s where I’d expect it to be after two months in such a fluid situation. It will be even better in June.”