IEA Warns of a Risk to Oil Demand over the Resurgence of the Coronavirus

The International Energy Agency (IEA) warned that the second wave of the coronavirus outbreak will post as a major risk factor for demand.

 

IEA stated that a better than expected mobility in OECD countries and the gradual easing of lockdown measures led to an upward adjustment of 3.2 mb/d to IEA’s global 2Q20 demand number; but it is still sharply down on last year by 19.9 mb/d.

Although 2H20 will be slightly weaker than previously forecast, IEA’s outlook for 2020 as a whole shows a demand fall of 8.6 mb/d, 0.7 mb/d more than its previous report.

 

Global oil supply is set to fall by a spectacular 12 mb/d in May to a nine-year low of 88 mb/d, as the OPEC+ agreement takes effect and production declines elsewhere. For some OPEC countries, e.g.Saudi Arabia, Kuwait and the UAE, lower May production is from record highs in April. Led by theUnited States and Canada, April supplies from countries outside of the deal were already 3 mb/d lower than at the start of the year.

 

Oil production is reacting in a big way to market forces and 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, which is a major risk factor for demand.

Another is whether a high level of compliance with the OPEC+ agreement will be achieved and maintained by all the major parties. OPEC+ producers will meet on 10 June to discuss the state of the market and the progress of the output agreement.