London — Global oil demand will contract for the first time in a decade during the first quarter of 2020, the International Energy Agency said Thursday, as the coronavirus outbreak slams the brakes on China's oil-hungry economy.
As a result of the corona virus outbreak, which has slashed Chinese energy demand and canceled hundreds of flights as the death toll rises, the IEA cut its 2020 oil demand growth forecast by 365,000 b/d to 825,000 b/d, the lowest since 2011. The virus outbreak will reduce Chinese refining throughputs by 1.1 million b/d during Q1, the IEA forecasts, causing global oil demand to shrink by 435,000 b/d, the first quarterly contraction since the global financial crisis in late 2009.
The virus is expected to reduce world oil demand by 1.1 million b/d in Q1 and by 345,000 b/d in Q2, the IEA said, slashing its oil demand forecast for 2020 by almost 500,000 b/d. Overall 2020 oil demand is now forecast at 100.97 million b/d, 480,000 b/d below the IEA's previous estimate.
"Before the outbreak of Covid-19, [China] was expected to drive over a third of oil consumption growth in 2020, but now we think it will be less than a fifth," the IEA said in its latest monthly oil market report.
Global oil demand growth in 2019 was also trimmed by 80,000 b/d to 885,000 b/d, the IEA said, on lower-than-expected consumption in the OECD.
OPEC UNDER PRESSURE
Before the virus outbreak last month, the IEA had been predicting a major supply surplus in the first half of 2020, driven by rising non-OPEC oil supply. With demand growth now expected to fall sharply due to the outbreak, the call on OPEC's crude will plunge to 27.2 million b/d in Q1, the IEA said, some 1.7 million b/d below the group's January production of 28.86 million b/d. For the year as a whole, the call on OPEC crude oil is now 28.4 million b/d, down 1.3 million b/d from 2019, the IEA estimates.
"With Covid-19 potentially hitting demand hard in H1 2020, producers are under pressure to make further cuts," the IEA said.
The global oil market had been expected to move toward balance in the second half of 2020, due to a combination of new OPEC production cuts from the start of the year, stronger demand and a tailing off of non-OPEC supply growth.
The IEA said it still expects non-OPEC supply growth in 2020 of 2 million b/d, driven mostly by US shale, a factor that likely won't be hit by the $10/b fall in oil prices since the outbreak until later in 2020.
Brent crude was trading 0.9% lower on the day at $55.30/b at 1100 GMT in London on Thursday, down from around $65/b in late January.
The OPEC+ producer group is considering an additional 600,000 b/d of production cuts due to the virus outbreak on top of the 1.7 million b/d already pledged. Russia has been more cautious over a further cut and has yet to back the proposal.
LIBYAN SUPPLY CRUNCH
OPEC's crude output tumbled in January to 28.86 million b/d, the lowest since the global recession of 2009, the IEA estimated, marking the first month of deeper OPEC+ cuts. A port blockade also cut Libyan flows sharply, with January production 360,000 b/d lower than December's at an average 780,000 b/d.
By early February output was only 15% of December's, the IEA estimated, at around just 180,000 b/d.
In its own monthly oil market report on Wednesday, OPEC also sharply cut its oil demand forecast for 2020 citing the virus' toll on China's economy. OPEC shaved 230,000 b/d off its 2020 world oil demand growth forecast.
On stocks, the IEA said OECD industry inventories held largely steady in December at 2.91 billion barrels as a build in product inventories more than offset lower crude holdings. Total oil stocks stood 26.4 million above the five-year average and covered 61 days of forward demand. It said preliminary data for January show inventories building in the US and Japan but falling in Europe.