Oil market falls too big to offset with output cuts, IEA warns
The International Energy Agency (IEA) on Wednesday forecast a 29 million barrel per day dive in April oil demand to levels not seen in 25 years and warned no output cut by producers could fully offset the near-term falls facing the market.
Benchmark Brent crude futures fell following the IEA’s monthly report, trading down more than 4% or $1.30 to $28.30 per barrel at 1027 GMT.
The IEA forecast a 9.3 million bpd drop in demand for 2020 despite what it called a “solid start” by producers following a record deal to curb supply in response to the coronavirus pandemic.
“By lowering the peak of the supply overhang and flattening the curve of the build-up in stocks, they help a complex system absorb the worst of this crisis,” the Paris-based IEA said in its monthly report.
“There is no feasible agreement that could cut supply by enough to offset such near-term demand losses. However, the past week’s achievements are a solid start.”
OPEC and other producers including Russia on Sunday agreed a record cut in output from May of 9.7 million bpd, or almost 10% of global supply, to help support prices and curb oversupply.
Ahead of that, however, April could prove the worst month ever for the industry as production is set to increase while demand tumbles amid economic lockdowns around the world, experts said.
Oil producers “lost two very important months”, Birol added, referring to events including the failure of producers in early March to agree on cutting output. Instead, Saudi Arabia, Russia and others pledged to increase production as they looked to grab back market share.