After a rocky few years, the oil industry is forecasted to see a decline in oil demand growth for the first time since 2009. The IEA is expecting the first quarter of 2020 to see the demand decrease by 2.5 million barrels per day year-on-year.
March Oil Market Report summary
The IEA Oil Market Report provides authoritative data, forecasting and analysis of the global oil market. March sees their latest report which, of course, discusses the impact COVID-19 has had on the market.
As coronavirus spreads across the globe, the IEA is estimating a fall in demand by 90 kb/d year-on-year. In 1Q20 alone, global demand has decreased by 2.5 mb/d. The assumption is that we will see demand return in 2H20 to almost normal.
In addition to a fall in global oil demand, the IEA reported a decrease in global oil supply in February of 580 kb/d and estimates that 2020 global refining throughput will fall below 2017 levels for a second consecutive year. The decrease in throughput is directly associated with coronavirus, due to the decreased demand in transport fuel.
January saw OECD industry stocks increase by 27.8 mb, reaching 2930 mb. As promising as this looks, it was actually due to product inventory building offsetting counter-seasonal draws of crude stocks.
Coronavirus and the oil market
On March 23rd, the World Health Organisation confirmed that cases of coronavirus have surpassed 300,000. The impact of COVID-19 on the oil industry is predicted to result in the first full year decline in over ten years.
China accounted for over 80% of oil demand growth globally which has played a role in this decrease. While data collection has not yet been completed, the first quarter of 2020 has seen a marked decline in commercial and industrial activity points and transport. This has resulted in global oil demand dropping by 2.5 mb/d comparative to the same period last year.
The IEA Oil Market Report states that the oil market outlook will be dependent on government efforts to contain the outbreak, the success of any actions taken and the ‘lingering impact’ the crisis has on economic activity. In light of this, the IEA has had to propose base case alternatives, including both a pessimistic and optimistic outlook depending on the continued impact of coronavirus, which can be found in the report.
The IEA’s pessimistic low case
This case expects countries that have already been impacted by the virus will see a slow recovery as the pandemic continues to spread. It takes into consideration that efforts to control the propagation of the virus will take longer, while oil demand in China will ease more slowly throughout March.
The third quarter of 2020 will see European oil demand continuing to be subdued, with US demand growing at a reduced pace. The IEA predicts that in 2020, oil demand could potentially decline by 730,000 barrels per day in this case.
The IEA’s optimistic high case
The optimising high case is based on the assumption that China can bring the outbreak swiftly under control and that more severe contagion is limited to a few countries, with Europe and North America seeing no serious impact. In this outlook, government containment does not require strong measures and transport use ‘remains closer to normal’. Predictions by the IEA, in this case, see 2020 oil demand growing by 480,000 barrels each day.
The World Health Organisation has reported that the coronavirus pandemic is accelerating. This, along with government action, means the full impact of coronavirus on the oil industry is yet to be seen.