By Hamilton Nwosa (Head, The New Diplomat’s Business and Data Tracking Desk)
The International Energy Agency(IEA) based in Paris has projected that Oil demand may not recover to its pre-pandemic dynamics until 2022 at the earliest. According to the IEA, this projection is premised on oil surplus flowing around the world, a development that has reportedly tapered earlier than expected, a quick rebound in demand in some parts of the world after an all time low record drop in global consumption.
According to energy experts, the dip in global supply crashed by 12 million barrels per day (mb/d) in May, year-on-year, owing largely to the estimated 9.4 mb/d of cuts from OPEC+ along with sharp curtailments from non-OPEC countries. China’s “strong exit from lockdown measures” saw Chinese demand in April almost back to normal levels, the IEA noted.
The IEA projects further that with the easing of lockdown restrictions around the world, there is the likelihood that a rebound in demand during the second half of 2020 might happen notwithstanding the fact that China, the large economy said recently that all schools and institutions of learning in the country will remain temporarily shut down in the capital due to latest cases of coronavirus crisis.
Though, the IEA could not put its fingers exactly at how this development would impact on global Oil prices, and the future of the Chinese economy in terms of its strategic energy demands, there are indications that this might have some inimical impact on Oil prices globally.
Given this development and other dynamics, the IEA projects that Oil demand is expected to fall by 8.1 mb/d in 2020 on an annual average basis, the largest decline ever recorded. The Paris-based International Energy Agency (IEA) further estimates thus :
“In 2021, demand rises by 5.7 mb/d, a huge increase, but still falling short of pre-pandemic levels. At 97.4 mb/d, the forecasted consumption for 2021 will be 2.4 mb/d below 2019 levels, although the IEA warned about significant uncertainty to all of these projections. The IEA’s forecast only goes through 2021, which means that it may take until 2022 at least for demand to fully recover, if it ever does.
“Road traffic has seen somewhat of a V-shaped recovery, not just because of the easing of lockdowns but also because more people are resorting to cars instead of mass transit. Meanwhile, much of the lingering demand destruction is concentrated in the aviation sector, which is facing an “existential crisis.”
It added in its projections: “Global production is expected to fall by 7.2 mb/d this year, and only rise by 1.8 mb/d in 2021. $40 oil is not high enough to support a rebound in U.S. shale, the IEA said.
“Indeed, the rig count continues to fall, dipping below 200 last week, a record low. U.S. shale production is expected to decline by another 93,000 bpd in July. “Much of the market thinks that the coronavirus pandemic is “just a short-term blip, and that oil demand will soon return to its previous path,” Standard Chartered analysts wrote in a note on June 11. “We think that much of the market is ignoring the downside risks to demand arising from both economic weakness and permanent changes in patterns of energy use.”
It would be recalled that even though the COVID-19 crisis is global in spread, its impact on countries are different with country-specific cases. This is because the pandemic is rattling countries differently with no uniformity of approach and severity.
According to latest data from Bank of America Merrill Lynch, the pandemic may end up protecting advanced economies that are focused on sophisticated service industries such as education, finance, or information technology, but proceeds to negatively impact on countries that are more reliant on tourism and basic industries..
It would be recalled that a recent survey findings based on a scientific survey conducted by Reuters had revealed that OPEC member countries only complied with agreed production cut by 74% in May. This is premised on the fact that the various countries reacted differently to the impact of the COVID-19 on their economies as already indicated by the IEA of the United States.
Recall also that following escalating oil price crisis occasioned by COVID-19 shocks as well as plummeting oil prices globally caused by glut in international storage capabilities, the Organization of Oil Producing Countries(OPEC) and non-OPEC member countries including the United States, Russia and Mexico had agreed to an output cut of 9.7 million barrels of oil per day. This deal which was fully applicable to OPEC member countries was meant to normalize the state of global oil supplies and price dynamics.
