The outbreak of Coronavirus in China and the subsequent spread across the world is likely to result in a fall in demand for global oil consumption this year, the International Energy Agency said on Monday. This would be the first time since 2009 that oil consumption would have declined in a year.
The IEA, which releases its oil market forecast from time to time, sees global oil demand at 99.9 million barrels a day in 2020, down around 90,000 barrels a day from 2019. This is a sharp downgrade from the its own forecast made only last month when it had predicted global oil demand to grow by 825,000 barrels a day this year. The forecast comes on a day when Brent crude prices have fallen by 30 per cent as Saudi Arabia, world's largest crude producer, decided to hike production from its oil fields and offer deep discounts to its customers even as overall demand has slumped since the outbreak of the virus in late January in China. Crude prices are on track to register its biggest single day fall since the gulf war of 1991.
"The coronavirus crisis is affecting a wide range of energy markets - including coal, gas and renewables - but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand for transport fuels," said Dr Fatih Birol, the IEA's Executive Director. "This is especially true in China, the largest energy consumer in the world, which accounted for more than 80 per cent of global oil demand growth last year. While the repercussions of the virus are spreading to other parts of the world, what happens in China will have major implications for global energy and oil markets."
The IEA has simulated two cases of spread of the virus and its impact on demand for crude. In the pessimistic low case where global measures fail to contain the virus, demand would fall by 730,000 barrels a day in 2020 while in a more optimistic high case where the virus is contained quickly, global demand stands to grow by 480,000 barrels a day.
"We are following the situation extremely closely and will provide regular updates to our forecasts as the picture becomes clearer," Dr Birol said. "The impact of the coronavirus on oil markets may be temporary. But the longer-term challenges facing the world's suppliers are not going to go away, especially those heavily dependent on oil and gas revenues. As the IEA has repeatedly said, these producer countries need more dynamic and diversified economies in order to navigate the multiple uncertainties that we see today."
In its report on medium-term outlook that examines key issues in global demand, supply, refining and trade to 2025, which was also released on Monday, IEA said there would be a sharp rebound in 2021, following the contraction in 2020, but yearly growth in global oil demand is still set to be slow as consumption of transport fuels would grow more slowly.
Between 2019 and 2025, global oil demand is expected to grow at an average annual rate of just below 1 million barrels a day. Over the period as whole, demand would rise by a total of 5.7 million barrels a day, with China and India accounting for half of the growth, IEA said.
At the same time, the world's oil production capacity is expected to rise by 5.9 million barrels a day, with more than three-quarters of it coming from non-OPEC producers. But production growth in the United States and other non-OPEC countries is set to lose momentum after 2022, allowing OPEC producers from the Middle East to turn the taps back up to help keep the global oil market in balance.
"The coronavirus crisis is adding to the uncertainties the global oil industry faces as it contemplates new investments and business strategies," Dr Birol said. "The pressures on companies are changing. They need to show that they can deliver not just the energy that economies rely on, but also the emissions reductions that the world needs to help tackle our climate challenge."