Global oil demand is expected to shrink in 2020 due to the coronavirus pandemic, according to the International Energy Agency (IEA).
IEA reported that almost a decade of global oil demand growth in 2020 will be erased by the coronavirus pandemic, with countries worldwide shutting down economic and social activities.
Governments around the world implemented strict measures on the public lives of billions of people to curb the spread of the coronavirus. This situation led to an unprecedented demand shock in energy markets.
The IEA mentioned that transportation movements have been reduced dramatically almost everywhere. This is the result of the implementation of confinement measures in 187 countries and territories as a response to the COVID-19 outbreak.
“Even assuming that travel restrictions are eased in the second half of the year, we expect that global oil demand in 2020 will fall by 9.3 million barrels a day versus 2019, erasing almost a decade of growth," the IEA said.
Based on the agency's monthly report, demand in April is expected to be 29 million barrels per day lower than a year ago, shrinking to a level last felt in 1995.
Oil demand for the second quarter of the year may settle at 23.1 million barrels per day below year-ago levels.
The IEA only expects only a gradual recovery in the second half of the year. Demand in December may still be down 2.7 million barrels per day year-on-year, according to IEA.
Meanwhile, oil prices, which were trading quite lower Wednesday morning, stretched their losses shortly after the report was released.
International benchmark Brent crude traded at $28.74 a barrel, declining by more than 2.8%, while U.S. West Texas Intermediate (WTI) remained at $19.77, falling around 1.7%.
Moreover, WTI futures closed more than 10% lower in the previous session, landing marginally above $20 a barrel. Brent reached almost 7% lower on Tuesday, which was below $30.
Forecasts from IEA arrived shortly after oil producers OPEC and its non-OPEC allies, also known as OPEC+, reached a historic agreement to reduce oil output along with other producers, including the US.
The deal involves taking 9.7 million barrels per day off the market starting May 1.
“The historic decisions taken by OPEC+ and the G-20 should help bring the oil industry back from the brink of an even more serious situation than it currently faces,” the IEA said.
“Even so, the implied stock build-up of 12 million barrels per day in the first half of the year still threatens to overwhelm the logistics of the oil industry — ships, pipelines and storage tanks — in the coming weeks.”
According to the IEA, they were encouraged by the “solidarity” expressed by policymakers from producing and consuming countries. However, they warned that there was “clearly a long way to go before we can pun the Covid-19 crisis behind us.”
Global economy loss
Meanwhile, the global economy hit from the coronavirus pandemic will likely turn out as the worst financial crisis since the Great Depression, according to the International Monetary Fund (IMF).
According to the World Trade Organization, global trade will contract by between 13% and 32% for 2020. Meanwhile, the Organization for Economic Coordination and Development said that the economic hit from the coronavirus will be felt “for a long time to come.”
