Energy Economy

Oil Demand in 2020 Expected to Drop by Largest Amount in History

The carefully followed International Energy Agency Monthly report for June says oil demand will drop by the largest amount in history in 2020:

Oil demand in 2020 is expected to fall by 8.1 mb/d, the largest in history, before recovering by 5.7 mb/d in 2021. Reduced jet and kerosene deliveries will impact total oil demand until at least 2022. In this Report the forecast for 2020 oil demand has been raised by nearly 500 kb/d to 91.7 mb/d, due to stronger than expected deliveries during the Covid-19 lockdown. In China, oil demand recovered fast in March-April and India’s demand rose sharply in May.

Supply was hammered last month because of cuts in supply from OPEC+. The supply also was cut due to the shutdown of major world economies. Supply is expected to remain low:

Global oil supply is set to tumble by a massive 7.2 mb/d on average in 2020, and stage only a 1.8 mb/d increase in 2021 assuming 100% compliance with OPEC+ cuts. The recent improvement in oil prices that saw WTI trading for a few days close to $40/bbl is not enough to allow a significant increase in US output, which in June is estimated to have fallen to 10.5 mb/d, down by 2.4 mb/d from a record high seen in November. In the meantime, high crude and product stocks will limit the scope for producers in many countries to sell more to refiners. In the case of the US, data from the Energy Information Administration show that commercial stocks of crude oil and products have increased by about 1 mb/d since the start of the year and are at an all-time record high.

This means that U.S. shale output may not recover this year and that companies in the industry will continue to be strained financially.