IEA: Oil Markets Upended by Covid-19

The International Energy Agency (IEA) is predicting that global oil demand will drop in 2020 in part because of the Covid-19 outbreak.

If the forecast holds, it will mean year-over-year oil demand will drop for the first time since 2009. The latest IEA Oil Market Report forecasts that, under the most likely scenario, demand will fall year-on-year by 90 kb/d. Global refining throughput in 2020 is expected to decline for the second consecutive year, falling below 2017 levels as demand for transport fuels plunges in the wake of the coronavirus, the report said.

“In the past few weeks, Covid-19 (coronavirus) has gone from being a Chinese health crisis to a global health emergency,” the report states. “While China has taken strong measures in response to the outbreak, the situation appears to be worsening around the world, with more than 60 countries reporting cases. The impact on the world economy is becoming more apparent, and growth estimates for this year are being downgraded.”

Earlier this month, the Organization for Economic Co-operation and Development (OECD) lowered its global economic growth estimate for 2020 by 0.5% to 2.4%, a revision that is factored into the IEA projections.

“The immediate outlook for the oil market will ultimately depend on how quickly governments move to contain the coronavirus outbreak, how successful their efforts are, and what lingering impact the global health crisis has on economic activity,” the report states.

In a worst-case scenario, countries already affected by the virus recover slowly while the epidemic spreads further across the globe. If that happens, global oil demand could decline by 730 000 barrels per day in 2020, the EIA estimates.

The optimistic view sees oil demand actually growing by 480 000 barrels per day in 2020.

“The coronavirus crisis is affecting a wide range of energy markets – including coal, gas and renewables – but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand for transport fuels,” said Dr. Fatih Birol, the IEA’s Executive Director. “This is especially true in China, the largest energy consumer in the world, which accounted for more than 80% of global oil demand growth last year. While the repercussions of the virus are spreading to other parts of the world, what happens in China will have major implications for global energy and oil markets.”