IEA slashes oil demand growth forecast on coronavirus

The IEA today issued a dire warning about the effect of the coronavirus on global oil demand. It slashed its forecast for 2020 global demand growth to the lowest since 2011, and said demand will fall year-on-year in the first quarter — the first such decrease since "the depths of the global financial crisis" in 2009.

It noted that this is "based on an assumption that economic activity returns progressively to normal in the second quarter of 2020," and said "it is hard to be precise about the impact" of the outbreak.

The IEA expects consumption to fall by 435,000 b/d in the first quarter of this year compared with the same period of 2019. It expects demand to grow this year by 825,000 b/d, which is 365,000 b/d slower than it anticipated last month, the IEA said in its latest Oil Market Report (OMR). Last year's growth was 885,000 b/d.

In China, the epicentre of the coronavirus outbreak, state-controlled ChemChina is cutting run rates across 370,000 b/d of refining capacity in Shandong province. The latest cuts suggest total Chinese refinery runs have now fallen this month by around 3mn b/d from January.

"The virus is expected to reduce world oil demand by 1.1mn b/d in the first quarter of 2020 and by 345,000 b/d in the second quarter," the agency said. "Demand is expected to normalise in the third quarter of 2020, growing by 1.5mn b/d year-on-year, likely benefitting from economic stimulus measures in China."

Opec yesterday also cut its global oil demand growth projections for this year, but only by 230,000 b/d, to 990,000 b/d, and it anticipated demand growth in the first quarter. The IEA's call-on-Opec crude is 27.2mn b/d in the first three months of this year, or 1.7mn b/d lower than Opec's production in January and compared with the watchdog's fourth-quarter 2019 call of 29.4mn b/d.

"For the year as a whole, the call on Opec crude oil is 28.4mn b/d, down 1.3 mb/d from 2019," the IEA said. "Our forecast for non-Opec supply growth in 2020 is steady at 2mn b/d."

"Lower oil prices, if sustained, are also bad news for highly responsive US oil companies, but we are unlikely to see an impact on output growth until later in the year," the IEA said.

By Konstantin Rozhnov