Dubai — Oil producers may need to exert more efforts to lessen the coronavirus impact on the oil market because demand is not expected to recover quickly, given the amount of surplus and large volume of crude held in floating storage, the executive director of the International Energy Agency said Wednesday.
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"From the current picture [and] if nothing changes, I believe there may a be need for further efforts coming from producing countries in order to make 2020 a bit less worse than what we thought of in the beginning of this crisis," Fatih Birol said in a Gulf Intelligence interview that was webcast.
"Demand will not jump from one day back to levels we had before the crisis and we still have a huge amount of surplus and plus a lot of floating oil around the world so therefore one needs to be very careful if one doesn't want to change."
The IEA said in its April monthly report that global oil demand is expected to fall by a record 9.3 million b/d year-on-year in 2020, with the worst of the demand collapse seen in April, when consumption could drop to 1995 levels.
The Paris-based agency forecast demand dropping by as much 29 million b/d year-on-year in April followed by a plunge of 26 million b/d in May. The IEA will release its May oil market report on Thursday.
Birol said the figures in Thursday's report will be "worrying" for the oil industry.
"2020 may well be the worst year in the history of oil industry, and April will remain the Black April," Birol said.
The easing of lockdowns has helped the oil industry but is not enough, he said. Oil prices have risen in the last week due to relaxation of lockdowns and the implementation of the new OPEC+ pact to cut a record 9.7 million b/d of crude output in May and June. Birol commended Saudi Arabia, the UAE and Kuwait for announcing an extra 1.2 million b/d in cuts for June, but also said oil output curbs from private companies in countries like the US are also helping reduce supply.
But Birol expects shale oil to recover from this crisis, despite skeptics who had written it off.
"Some people thought, even sometime in January, that the shale oil is going to be dying forever: I don't agree with that," he said. "With prices coming back to $40/b and above, we will see shale come back and to say shale will be dying or we will wipe out shale, as one country said, is playing Russian roulette. Shale will get a big hit now for sure. I believe shale will come back maybe slowly. One of the lessons to learn from this period: it was too quick to write the obituary of shale oil."
Birol said he expects the US, Saudi Arabia and Russia to continue to be major producers and China, India and Middle East to be major demand centers for oil growth.
But to return to a global oil market with a demand of 100 million b/d, as in recent years, will take some time and will depend on a number of factors such as economic growth and whether there will be a second wave of the coronavirus pandemic, Birol said.