Global oil demand is expected to decline in 2020 for the first time since 2009, according to the International Energy Agency (IEA), as the impact of the coronavirus (COVID-19) continues to spread around the world, constricting both travel and broader economic activity.
According to the IEA, global oil demand already fell by approximately 2.5% in the first quarter of 2020, wiping out 2.5 million barrels per day (mb/d) in that period, and setting the course for oil demand to shrink by 90,000 barrels per day throughout the whole year.
Global oil supply fell by 580,000 barrels per day in February due in large part to production slowing dramatically in Libya. Conversely, global oil demand unsurprisingly fell by 1.8 mb/d in China, leading to global oil demand’s dramatic decline of 2.5 mb/d.
However, the IEA currently assumes that oil demand will return to “close to normal” in the second half of 2020, after a second quarter in which global oil demand is only “slightly lower” than a year earlier. The IEA therefore expects to see global oil demand in the second half of 2020 to pick up and grow by 1.1 mb/d compared with the second half of 2019.
“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% 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 predicted decline in global oil demand is so fluid, in fact, that the IEA has been forced to develop two other scenarios for how oil demand might play out this year – a “pessimistic” low case and a “more optimistic” high case.
The IEA’s low case scenario predicts global oil demand falls to 730,000 barrels a day in 2020, while its high case scenario sees global oil demand 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.
“The coronavirus crisis is adding to the uncertainties the global oil industry faces as it contemplates new investments and business strategies. 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.”
Looking further into the future, the IEA’s medium-term outlook forecasts that after an “expected sharp rebound in 2021,” global oil demand is “set to slow” as the consumption of transport fuels continues to grow slowly.
The IEA expects to see global oil demand between 2019 and 2025 grow at an expected average annual rate of just below 1 million barrels a day, while demand will rise by a total of 5.7 million barrels a day, with China and India unsurprisingly accounting for approximately half of that growth.
The IEA has regularly underrepresented the growth of renewable energy in the global energy sectors and so their latest medium-term figures can again be taken with a grain of salt. However, the near-term impact of the coronavirus on global travel and economic growth is a more tangible effect. The OECD lowered its global economic growth estimate for 2020 by 0.5% to only 2.4%, a shift which the IEA factored into its new short-term projections.