Global energy demand will collapse again if coronavirus makes a comeback, IEA warns

A Second wave of Covid-19 cases is a major risk for the energy market, the International Energy Agency (IEA) has warned. The agency raised its outlook for oil demand, which will still see a record drop this year.

In its key monthly report published on Thursday, the Paris-based energy watchdog said it expects global oil demand to fall by 8.6 million barrels per day (bpd). That’s around 700,000 bpd more than the IEA said in its previous report.

“Major uncertainties remain. The biggest is whether governments can ease the lockdown measures without sparking a resurgence of Covid-19 outbreaks,” the report said.

The IEA said the easing of coronavirus-related restrictions was helping demand in energy markets. It expects that the number of people living under some form of confinement measures would stand at 2.8 billion by the end of May – down from a recent peak of 4 billion.

It added that whether major oil producers stick to their commitments under OPEC+ agreement will also have a major impact on the future of the energy market. The output caps agreed by the bloc, alongside production cuts made by nations beyond it, will wipe out 12 million bpd from the oil market in May, according the IEA estimates. The agency added that the US would be the key single driver of supply reductions, cutting daily output by 2.8 million barrels compared with a year ago.

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As the year is still set to be the worst on record for oil demand, IEA Executive Director Fatih Birol still doubts that the announced output cuts by major Gulf Arab producers would be enough to balance global markets as coronavirus lockdowns severely crippled demand.

“I am happy to see Saudi Arabia, the Emirates and Kuwait – on top of their existing commitments – are now going to make further cuts. I do welcome them, whether or not this is enough, I do not think so,” he told reporters as cited by Reuters.

The closely-watched IEA outlook and a reported drop in US crude stocks boosted oil prices on Thursday. Futures for international benchmark Brent crude were up around three percent, trading slightly above $30 per barrel. West Texas Intermediate (WTI) jumped more than two and a half percent to around $26 per barrel.

The IEA expectations are more optimistic that those of the Organization of the Petroleum Exporting Countries (OPEC) presented on Wednesday. Unlike fellow analysts at the IEA, OPEC worsened its forecast for this year. According to OPEC predictions, daily global oil demand is set to shrink by 9.07 million barrels in 2020, a deeper contraction than its previous forecast of 6.85 million barrels.

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