Global demand to slip considerably in H2 as economic recovery from Covid weighs
A potential second wave of the coronavirus could prompt governments to impose renewed restrictions on movement
Global oil demand will decelerate markedly in the second half of 2020, the International Energy Agency (IEA) forecast on Tuesday, citing caution about the pace of economic recovery from the coronavirus pandemic.
The Paris-based IEA cut its 2020 outlook by 200,000 bpd to 91.7 million bpd in its second downgrade in as many months.
"We expect the recovery in oil demand to decelerate markedly in the second half of 2020, with most of the easy gains already achieved," the IEA said in its monthly report.
On Monday, in a closely-watched monthly report, the Organisation of Petroleum Exporting Countries (Opec) downwardly revised its outlook for global oil demand to an average of 90.2 million barrels per day in 2020, down by 9.46 million bpd. That's down 400,000 bpd from the previous month's estimate of 9.06 million bpd.
"Risks remain elevated and tilted to the downside, particularly related to the development of Covid-19 infection cases as well as possible cures," Opec said of the 2021 outlook.
"The economic slowdown will take months to reverse completely, while certain sectors such as aviation are unlikely to return to their pre-pandemic levels of consumption even next year," the IEA said.
It also warned that a potential second wave of the virus could prompt governments to impose renewed restrictions on movement, while the uptake of remote working is also dampening demand for fuel.
"Consumption remains around 10.7 million bpd below 2019 levels due to the impact of virus containment measures on transport demand, the uptake of teleworking and the economic crisis unleashed by the virus," the IEA said.
"A dent in demand caused by a continuing rise in cases or a second wave presents the most likely shock that the oil market needs to be considering in the next 12 to 24 months," Vitol's global head of research Giovanni Serio said.
Oil prices tumbled in April, with US crude futures falling at one point through negative $40 a barrel. Prices of both US crude and Brent recovered, but are now trading at less than $40, due to the weak rebound in demand.
"As economies around the world opened up, there was optimism and enthusiasm that we would just head back to normal over some period of time," said Andrew Lipow, president of Lipow Oil Associates.
"What we're seeing now is that there's more pessimism because we're seeing a resurgence of the virus around the world."
Energy giant BP, in its 2020 outlook released on Monday, projected in its base-case scenario that oil consumption peaked for good last year due to the health crisis, and that coronavirus could slash oil demand by about three million bpd by 2025 and by two million bpd by 2050.
Vitol chief executive Russell Hardy sounded a more positive note, telling a global petroleum conference in Singapore that oil demand in transportation sectors, with the exception of jet fuel, could return to pre-pandemic levels by the fourth quarter of 2021. That could help drain a surge of inventories, which grew by roughly 1.2 billion barrels in tanks and in water storage, Hardy said.
"The market is slowly chewing through that excess inventory," he said, adding that about 300 million barrels have been drawn down from this year's peak.
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