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Involuntary non-OPEC output cuts should not be underestimated: IEA's Birol

Highlights

Reduction from non-OPEC+ 'could well be similar' to OPEC+ cuts

Demand recovery hinges on easing of restrictions

Currently 50% of global energy demand impacted by lockdowns

London — Involuntary production cuts from non-OPEC countries should not be underestimated, the executive director of the International Energy Agency said Thursday, adding that the massive demand destruction caused by the coronavirus pandemic was forcing companies to shut in more output.

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"These reductions may well be similar to reductions that will be coming from OPEC+ throughout the year," said Faith Birol on a press webinar at the launch of IEA'S Global Energy Review. "We are not yet there but we seeing some [production cuts] already."

The 23-country OPEC/non-OPEC coalition known as OPEC+ agreed to cut output by 9.7 million b/d for two months from an agreed baseline level starting May 1. These countries will also cut 7.7 million b/d between July and December and 5.8 million b/d from January 2021 to April 2022.

This deal is underpinned by support from the G20 energy ministers with further potential initiatives still being worked out.

But Birol said that there have already been hefty production cuts from the US, Canada and Brazil, along with recent announcements from Norway.

"I would expect reduction from countries whose oil markets are run by private companies to be at a level that one should not underestimate," he said.

US oil production has already fallen by 1 million b/d from its all-time high in March, according to data from the US Energy Information Administration.

Total US crude production slipped 100,000 b/d to 12.1 million b/d during the week ended April 24, the lowest since July 2019, EIA data showed.

Norway, Europe's largest oil producer, said it would cut production by 250,000 b/d in June and by 134,000 b/d in the second half of the year.

The Norwegian government added that the startup of production at several fields will be delayed until 2021 in a move to try and stabilize the oil market, which has seen prices plunge to below $20/b amid a coronavirus-induced collapse in demand.

Demand curve

Birol also said the oil demand recovery will be slow, contingent on the lifting of lockdowns.

"Because two-thirds of oil consumption comes from the transportation sector [the recovery] will be gradual and slow. Demand decline will still continue throughout the year," he added.

IEA expects oil demand to fall as much as 9.3 million b/d in 2020 but there could be a swifter recovery if lockdowns ease quickly, according to its Global Energy Review 2020.

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.

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 reinstate containment measures.

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.

The IEA'S chief energy modeller Laura Cozzi said currently 50% of global energy demand/use was affected by mandatory lockdowns.