Global oil demand is unlikely to return to pre-crisis until 2022, following the biggest downturn in oil market history, the International Energy Agency (IEA) reported on Tuesday.
The Paris-based energy group said that oil demand in 2020 is expected to fall by 8.1 million barrels per day (mb/d), before recovering by 5.7 mb/d in 2021 and underlined that reduced jet and kerosene deliveries will impact total oil demand until at least 2022.
Crude prices have tumbled around 40% year-to-date, as the oil market faced increased pressure during the economic shut-ins due to the coronavirus pandemic. Demand dried up and storage facilities struggled to cope with the surplus of the commodity.
On the positive side, oil prices rose in May to the highest in three months as economies re-open and demand began to recover while global supply fell sharply.The recent modest price recovery suggests that the first half of 2020 will end on a more optimistic note, the agency added in its closely-watched
monthly crude market report.
The IEA also hailed the contribution of OPEC and non-OPEC allies, an oil producer group sometimes referred to as OPEC+ , in the oil cut pact to balance the market. “So far, initiatives in the form of the OPEC+ agreement and the meeting of G20 energy ministers have made a major contribution to restoring stability to the market”
Earlier this month, OPEC+ finalised an extension of their record oil-production cuts through July. The group agreed in April to cut output by 9.7 million barrels a day, to prop up prices that collapsed due to the coronavirus crisis.The curbed output represents some 10% of the world’s overall supply. Following the deal, Saudi Arabia, OPEC's de facto leader and world's top exporter sharply raised its monthly crude prices for July.
But danger still lurks for the oil market.
"If recent trends in production are maintained and demand does recover, the market will be on a more stable footing by the end of the second half." "However we should not underestimate the enormous uncertainties," the ΙΕΑ report cautioned.
The IEA also noted that the aviation industry “is facing an existential crisis.” Jet and kerosene demand is likely to remain under pressure “well beyond” 2020.
The International Air Transport Association (IATA) estimates that the COVID-19 crisis will see airline passenger revenues drop by $314 billion in 2020, a 55% decline compared to 2019.
Oil prices moved higher on Tuesday (June 16) after the release of IEA's report. Brent crude jumped 2.1% to $40.54 per barrel while West Texas Intermediate crude gained 1.9% to $37.84 per barrel amid optimism that major producers were complying with coordinated supply cuts.
An OPEC+ ministerial JMMC meeting is scheduled for June 18 when the panel will discuss ongoing record output curbs and see whether countries have delivered their share of the reductions.