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The IEA Predicted A Record Drop In Oil Demand This Year

The IEA Predicted A Record Drop In Oil Demand This Year

In 2020, global oil demand will fall by a record 9.3 million barrels to 90.5 million barrels per day compared to 2019 – even if countries lift restrictions on the movement of people in the second half of the year, according to an April report from the International Energy Agency (IEA). In April, according to his estimates, demand will fall by 29 million barrels per day to the level of 1995, in the second quarter, the drop will be 23.1 million barrels per day. In the second half of the year, demand will begin to recover, but in December 2020 it will still be 2.7 million barrels per day less than a year earlier.

Demand for oil began to fall in January 2020 due to the spread of the coronavirus and government actions to combat it. The organization of petroleum exporting countries ' deal with other oil-producing countries, including Russia (OPEC+ deal), concluded on April 12, is designed to balance the implies a reduction in oil production by 9.7 million barrels per day in May – June with a gradual increase in production over two years.

On April 10, the oil market was also discussed at the G20 Ministerial meeting, where some non-OPEC+ countries also expressed their intention to reduce oil production. In the fourth quarter of 2020, they will produce 5.2 million barrels per day less than last year, and in general, by the end of the year – by 2.3 million barrels per day, the IEA expects. In May, according to the Agency, world oil supplies will decrease by 12 million barrels per day.

In addition, according to the Agency, China, India, Korea, and the United States have offered their strategic storage facilities for the temporary storage of oil, or are considering increasing their strategic reserves, which will also reduce the excess of oil on the market.

The IEA may announce the purchase of several million barrels of oil, Reuters reported on April 15, citing sources. According to them, the IEA requires 30 of its member countries to create strategic reserves of oil and petroleum products equal to the equivalent of at least 90 days of net oil imports. However, the organization has never previously conducted coordinated oil purchases and does not have the proper authority to do so, two Agency sources said. This is not mentioned in the Agency's report.

All the measures taken by countries will not bring the market to an immediate equilibrium but will reduce the peak of oversupply and reduce the growth of oil reserves, according to the IEA. The Agency's report says that it is almost impossible to reduce the supply by so much as to compensate for the drop in demand. In the first half of the year, oil reserves will continue to increase by about 12 million barrels per day, which in the coming weeks may overload the logistics of the oil industry-ships, pipelines and reservoirs.

If production does fall sharply, some of the oil falls into strategic reserves, and demand begins to recover, in the second half of 2020, demand may exceed supply, the IEA expects.

Falling demand for oil and the failure of the first negotiations on the extension of OPEC+ in early March led to a collapse in oil prices. At the end of March, the price of a barrel of Brent oil fell to $22, although at the beginning of the year it cost about $66. In anticipation of a new deal, prices rose to the level of about $33 per barrel but then continued to fall. On April 15, the day of publication of the IEA report, Brent at the opening of trading on the London Intercontinental exchange cost $30.26 per barrel, but by 16.00 Moscow time fell to $28.45 per barrel.

Low oil prices threaten the stability of the industry in the future, the IEA notes: capital expenditures of oil companies in 2020 will fall by about 32% to $335 billion – the lowest level in 13 years.

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