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IEA lowers demand forecast for 2020

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LONDON – The uncertainty in the oil market caused by the coronavirus pandemic is going nowhere, with the outlook for global demand even bleaker than it was last month, the International Labor Agency said on Tuesday. ‘energy.

In its meticulous monthly report on the oil market, the IEA forecast a steeper drop in global demand for 2020 than in its last report, increasing its forecast for contraction for the second month in a row. The agency now expects global demand to drop 8.4 million barrels this year, a contraction of 300,000 barrels more from last month’s report.

This echoed a similar move on Monday by the Organization of the Petroleum Exporting Countries, which deepened its own contraction forecasts while modifying a number of other forecasts to signal growing pessimism about the global economic recovery and its downturn. impact on energy demand.

The Paris-based IEA said it now expects global oil demand to contract by 5 million barrels per day in the fourth quarter of 2020 – a contraction of around 600,000 barrels per day more deeper than last month’s forecast.

The rise in Covid-19 cases in Europe, new restrictions and consistently high levels of working from home on the one hand, and the increased use of personal vehicles on the other hand, have made the market analysis “very difficult, ”the agency said.

As supply continues to rise, the recovery in demand for oil appears to be weakening, and the onset of winter in the northern hemisphere raises questions about the virulence of the coronavirus, the outlook for the global oil market. Oil “appear even more fragile” than they did a month ago, the IEA said.

Oil fell early on Tuesday, after slipping on Monday, fearing Libyan supply would return to the market. Brent crude oil – the global benchmark – fell 0.2% to $ 39.55 a barrel and West Texas Intermediate futures, the US benchmark, fell 0.1% to $ 37.24 per barrel.

Prices for both benchmarks fell more than 12% in September due to a combination of slowing demand and price declines from major producers, some of whom increased production.

As some stocks fell, the amount of oil in floating stock fell in August, a deepening contango – in which the price of oil futures for later delivery is higher than that of oil delivered. earlier – suggests the physical oil market, the agency said. Other metrics, such as OECD inventory levels, showed an increase in July to return to record levels.

In addition, Chinese oil purchases for September and October have slowed, leading to a glut of unsold barrels. With refining margins still low, “we are seeing that the trading houses are looking again to charter vessels to store the oil,” the IEA said.

A continued depression in demand for transportation fuels, shutdowns caused by hurricanes and the maintenance season mean that refinery margins and cycles will decline even further in the period up to October, according to the agency.

OPEC and its allies are likely to discuss the stuttering demand and rising stocks when the cartel’s joint ministerial monitoring committee meets later this week. The OPEC + alliance has in recent months held back some of the historic production cuts it was agreed to earlier this year, and although some reports have noted a slippage in cartel compliance, the IEA has reduced compliance with 97% in August.

OPEC + supply increased by 1.3 million barrels in August, with Saudi Arabia responsible for 500,000 barrels of the increase and Russia for another 400,000 barrels.

This increase contrasted with the stalling of supply recovery in non-Alliance countries like the United States, where production plummeted as the Gulf of Mexico was battered by Hurricane Laura. Even with production likely to recover in September, onshore drilling will remain “well below the levels required to offset declines in the shale plot,” the agency said.

Write to David Hodari at [email protected]

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