The volatility of the global crude market has an additional component on 2020, with the irruption of the health crisis. Since the pandemic announcement six months ago, the IEA and the OPEC have adjusted their expectations, both up and down, as the virus continues its path. But with an adverse common denominator. In its most recent report, the International Energy Agency foresees that global demand will drop to 2013 levels this year.
With this seven-year setback, demand would stand at 91.7 million barrels per day by the end of the year (-8.4% from 2019). This is more than the decline predicted in the August report, which refers to a drop by 8.1 million barrels.
According to the agency, the drop in expected demand stems from outbreaks in many nations, as well as the expected hardening of lockdown measures for the fall, meaning home office and limited air travel and tourism. The coronavirus shows “few signs of subsiding” in the coming months.
The report estimates that “the economic slowdown will take months to reverse completely. Meanwhile, it is unlikely that certain sectors, like aviation, go back to their pre pandemic consumption levels, even next year.”
In its market analysis, the agency expects a weak recovery for 2021. The demand is set to grow by 5.5 million barrels if China continues its recovery.
OPEC and IEA readjust crude demand estimates
Like the IEA, the OPEC downgraded estimates for global crude demand in 2020. In its analysis, the organization foresees demand will stand at 90.2 million barrel per day, down by 9.5 million compared with 2019, and 400,000 less than last month’s forecasts.
Its estimates present a fall that exceeds the IEA’s forecasts. It also lowered expectations for 2021.
The OPEC foresees crude consumption will increase to 96.9 million barrels per day next year, down by 400,000 from previous estimates. “Given the considerable uncertainties, the predicted rebound for 2021 will not be enough to cover for lost demand this year. And it will not reach pre-crisis levels of 100 million barrels a day soon,” said Mohammed Sanuski, OPEC Secretary General.
“In addition to aspects related to COVID-19, there are still many uncertainties, including high levels of debt, inflation, geopolitical risks, trade-related challenges, as well as the possibility of a tough Brexit”, OPEC added regarding the future economic scene.
This demand decline goes hand in hand with forecasts of a contraction of the global economy by 4%-4.1%, the organization added.
“China is expected to be the only major economy showing positive growth this year, although recovery in the US and the euro area seems to be gaining ground. This momentum is expected to carry over to 2021, when global growth is estimated to reach 4.7%,” the report says.
Slight price rebound
International benchmark Brent crude stood at $40.21 on Tuesday, up by around 1.5%. In the meantime, U.S. WTI was trading at $37.90, up by 1.7%.
Finally, the price of the OPEC basket stood at $39.35 per barrel, compared with $38.96 on Monday, according to the Organization.
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