IEA Sees First Global Oil Demand Drop in a Decade

Andrew Cummings
February 15, 2020

Oil prices edged higher on Thursday as investors focused on the possibility of deeper supply cuts from the world's biggest producers.

The changes to the forecasts and estimates are due to the coronavirus outbreak impact as IEA sees the widespread shutdown of the Chinese economy weighing heavily on demand - more so than OPEC - but they estimate a quicker recovery in the coming quarters.

Brent crude was up $1.05 cents or 1.9% at $57.39 a barrel by 1437 GMT.

"Our baseline thesis remains that oil demand destruction remains largely a China story and has yet to spill over to impact global demand", said Helima Croft, head of commodity strategy at Citadel Magnus.

"The Russians have pretty much signalled that everyone is on board for OPEC+ delivering deeper production cuts", said Edward Moya, senior market analyst at OANDA Corporation in NY. Some OPEC members have already called for an emergency meeting to consider new output cuts in order to prevent the market from tanking further.

"As long as the coronavirus does not show strong signs that the spreading of the virus is intensifying, WTI crude could make a run towards the mid-$50s", he added.

The price action also suggests that traders are a little more optimistic that the coronavirus outbreak has reached a peak and that the demand crisis may be ending.

Oil demand is set to fall year on year in the first quarter for the first time since the depths of the financial crisis in 2009 hurt by the coronavirus outbreak in China, the International Energy Agency (IEA) said on Thursday.

"The effect of the Covid-19 crisis on the wider economy means that it will be hard for consumers to feel the benefit of lower oil prices", the report concludes.

World fuel consumption - which had previously been expected to grow by 800,000 barrels a day during the three-month period, compared with a year earlier - will instead contract by 435,000 a day, the IEA said in its monthly oil market report.

"All of the fundamentals are basically negative and even equities are lower and crude oil on the other hand continues to rip higher", said Bob Yawger, director of futures at Mizuho Americas in NY.

Other reports by iNewsToday