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

London - The shortage of oil storage capacity worldwide and especially in the United States has addled markets and weighed on crude prices.

An easing of draconian coronavirus lockdown measures and a spectacular reduction in output are helping the oil market steady after a 'Black April', the International Energy Agency said on Thursday.
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.
"Since then, the outlook has improved somewhat and prices, while still far below where they were before the start of the Covid-19 crisis, have rebounded from their April lows," it said in its latest monthly report.
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.
"We estimate that from a recent peak of four billion, the number of people living under some form of confinement at the end of May will drop to about 2.8 billion worldwide," it added.
Led by the United States and Canada, producers outside the Organisation of the Petroleum Exporting Countries (Opec) 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.
If the Opec+ agreement is fully respected, global oil supply is set to fall by a spectacular 12mbd in May to a nine-year low of 88mbd, the IEA said.
If all the output cuts are implemented, Saudi Arabia in June will pump "an extraordinary 4.4 mbd below April's record level, it added.
"It is hard to get excited about a steady rebound for crude demand when the world's largest economy has significant uncertainty about the outlook and big downside risks," said Edward Moya, senior market analyst at OANDA.
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. - Reuters and AFP