The influential International Energy Agency (IEA) has joined the likes of OPEC and BP in cutting their outlook for oil.
BP’s cuts were more medium to long term but the IEA and OPEC looked at demand and supply for the rest of 2020 and into the new year – the news isn’t good for energy companies and enthusiasts, but looks like being OK for consumers.
The IEA’s forecast for the rest of this year was even more negative than it was in August.
In its September monthly oil-market report, the IEA forecast a sharper fall in global demand for 2020 than in its last report, lifting the size of its contraction forecast for the second straight month.
The agency now expects global demand to contract by 8.4 million barrels this year, 300,000 barrels more than in August’s month’s report.
That forecast echoed one from OPEC on Monday which also deepened its own contraction forecast.
OPEC cut its outlook for demand in 2020, saying world oil demand would fall by 9.46 million barrels per day (bpd) this year, an increase of 400,000 bpd from its previous report. It cut its outlook for Asian countries beyond China.
“Risks remain elevated and skewed to the downside, particularly in relation to the development of COVID-19 infection cases and potential vaccines,” OPEC said on Monday.
Supply from the OPEC+ group rose 1.3 million barrels in August, with Saudi Arabia responsible for 500,000 barrels of that rise and Russia accounting for a further 400,000 barrels.
OPEC and its allies will discuss the gloomier outlook for demand and rising inventories when its joint ministerial monitoring committee meets later this week online.
The Paris-based IEA said it now expects global oil demand to contract in 2020’s fourth quarter by 5 million barrels a day—a contraction some 600,000 barrels a day deeper than in its August forecast.
The Agency blamed the gloomier forecast on the impact of the rising number of Covid-19 cases in Europe, new restrictions and persistently high levels of working from home.
At the same time the increased use of personal vehicles on the other (which is generating more demand than expected for petrol, but not diesel, which is now heavily in oversupply), has made analysing and forecasting the market “very challenging.”
The IEA said the outlook for the global oil market “appears even more fragile” thanks to rising oil supplies, faltering demand (especially with aviation still largely grounded) and fears of a new round of COVID-19 infections as the northern hemisphere’s winter season approaches.
The prices of both benchmarks – West Texas Intermediate and Brent – have dropped by more than 12% in September due to a combination of stalling demand and price cuts from major producers, some of whom have been increasing production.
While some inventories have fallen- the amount of oil in floating storage dropped in August – the Agency highlighted the deepening contango in the oil future market —in which the price of oil futures contracts for delivery further into the future is higher than that of oil delivered sooner— as suggesting hidden weaknesses in the physical oil market.
Other negative metrics, such as OECD stock levels, showed an increase in July back to record highs while Chinese oil purchases for September and October delivery have slowed after the massive purchases in March, April, and May.
That has led to a glut of unsold oil and a looming bounce in the number of ships chartered to store oil, not transport it.
The IEA says that the continuing depression in demand for transport fuels, hurricane-induced shutdowns in the US and the usual maintenance season means that refinery margins and runs will fall even further over the next six to eight weeks.
BP said its 2020 outlook released on Monday that its base-case scenario says oil consumption peaked for good in 2019 due to the COVID-19 crisis, and that the coronavirus could slash oil demand by about 3 million bpd by 2025 and by 2 million bpd by 2050.