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IEA floats more upbeat oil demand scenario on swift recovery from pandemic

Highlights

Oil demand loss may be limited to 6.5 million b/d

Signs of gasoline support from public transport fears

Long-term implications still too early to call

London — Global oil demand could fall much less than expected in 2020 as a result of the coronavirus pandemic if lockdowns ease quickly and the world rebounds from the worst hit to energy demand since World War II, the International Energy Agency said Thursday.

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A reduced lockdown period and a strong economic recovery in the second half of 2020 could limit the annual decline in oil demand to 6.5 million b/d, or 6%, from 2019 levels, the IEA said, 30% below its central forecast of 9.3 million b/d for the year.

"Gasoline demand, in particular, could be supported by unwillingness to use public transport as recent trends show in China," the IEA said in a review of the impact of the pandemic on major fuels.

Under the IEA's current base-case scenario, the economic and social lockdowns implemented around the world in response to the pandemic are progressively eased in most countries in the coming months, accompanied by a "gradual" economic recovery.

As a result, oil demand is not expected to reach pre-crisis levels before the end of the year, with December demand still forecast to be 2.7 million b/d lower than December 2019 levels.

The report projects that global energy demand will fall 6% in 2020 – seven times the decline after the 2008 global financial crisis – with renewables set to be the only energy source likely to experience demand growth this year.

But the IEA also cautioned that the damage to oil demand could be even greater than expected if a second wave of infections occurs later this year, forcing governments to re-instate containment measures.

Long-term impact still unclear

Most market watchers predict at least a quarter, or 25 million b/d, of global oil demand has been sidelined in April due to the pandemic, which also risks damaging underlying oil demand the longer it goes on.

Demand for road fuels, which account for about half of the world's oil use, are key to draining the world's massive supply glut, which has devastated crude prices. Gasoline is seen making up about a third of the total oil demand loss globally, and the biggest by volumes, most of this being in the US.

The IEA said it sees gasoline demand remaining under pressure in the second half of 2020, falling by 590,000 b/d on average. For 2020 as a whole, the IEA said it sees gasoline consumption declining by 2.9 million b/d, or 11%.

Diesel consumption is expected to fall by 2 million b/d (7%) in 2020 while jet fuel demand is expected to fall by 2.1 million b/d on average, or 26%.

"The oil outlook crucially depends on the duration of the COVID-19 outbreak and the strength of the subsequent restart of economic activity," the IEA said. "...This unprecedented situation and the stimulus packages that governments are putting in place will shape the energy sector for years to come, with significant consequences for the energy industry at large, energy security and clean energy transitions."

Looking further ahead, the IEA said it expects the global energy industry to emerge from the crisis "significantly different" from before, but said it remains too early to predict the longer-term impacts.

S&P Global Platts Analytics forecasts the fall in global oil demand in 2020 will total 8.7 million b/d. Fossil fuel demand will fall by over 13 million barrels of oil equivalent/day in 2020, according to Platts Analytics' latest forecasts in its World Energy Demand model.