LONDON—The worst effects of the coronavirus on global oil demand have passed but will continue to echo as the market slowly recovers in the second half of 2020, the International Energy Agency said Friday.
In its closely read monthly report, the IEA said global oil demand in the first half of 2020 plunged by 10.75 million barrels a day, down roughly 11% from last year. It forecast oil demand would be down by 5.1 million barrels a day in the second half of the year.
Economic and transport activity is recovering following the lifting of some of the most stringent lockdown measures—two-thirds of the global population were under lockdown in April—but “the strong growth of new Covid-19 cases that has seen the reimposition of lockdowns in some regions, including North and Latin America, is casting a shadow over the outlook,” the IEA said.
Oil prices have traded in a narrow range in recent weeks, held back by worries over upticks in Covid-19 cases. The Paris-based agency has cut its third-quarter demand forecast, citing increasing infections in Brazil, Russia, and particularly the U.S.
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Brent crude oil was last down 1.9% at $41.56 a barrel and West Texas Intermediate futures, the U.S. benchmark, were 2.1% lower at $38.76 a barrel, pressured by concerns over rising Covid-19 cases in the U.S. and the news that Libya is restarting oil exports from its largest terminal after a six-month interruption, according to Tamas Varga, analyst at PVM Oil Associates.
Crude prices have received some support from sharp declines in supply. IEA data show that global output in June was 13.7 million barrels a day lower than it was in April when the Organization of the Petroleum Exporting Countries and its allies agreed to end a damaging price war and constrict some 13% of global supply.
The IEA estimated compliance with the deal was at 108%, with Saudi Arabia cutting production by an additional 1 million barrels a day. That puts OPEC’s output at its lowest in three decades.
Supply reductions in the U.S. have also contributed to the tighter market, with the IEA estimating declines in May and June at 1.3 million barrels and 0.5 million barrels a day respectively.
The IEA forecasts that U.S. production will bottom out in the second half of 2020.
Photo: paul ratje/Agence France-Presse/Getty ImagesBut producers’ strict adherence to reduced supply may start to wane, the IEA said, forecasting that U.S. production will bottom out in the second half of the year before starting to grow. OPEC and its allies are set to relax their cuts by 2 million barrels a day from August and Libyan production may rise by almost a million barrels between now and the end of the year, the agency added.
Supply cuts and second-quarter demand destruction that wasn’t quite as bad as the IEA had initially forecast mean the oil market is slowly tightening, with oil being stored at sea on tankers falling by 35 million barrels to 176 million barrels in June from an record in May. Whether the market will balance soon remains uncertain, though.
The world is still swimming in excess oil, with stocks among Organization for Economic Cooperation and Development countries having risen by 2 million barrels a day in 2020 and U.S. crude stocks building 2.8 million barrels a day last month, when they would normally fall by 13 million barrels a day in June.
Despite a rally in oil prices in recent months, any benefit refiners receive from improving demand is likely to be offset by a heavy stock glut from a weak second quarter and forecasts of tighter feedstocks that will squeeze profits, the IEA added.
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Write to David Hodari at David.Hodari@dowjones.com
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