NEW DELHI: In what can exacerbate the fall in energy prices, Paris-based International Energy Agency (IEA) on Monday revised lower global demand for the first time since 2009 in the backdrop of alarming spread of COVID-19, or the novel coronavirus.
The world’s premier energy monitor expects a 90,000 barrels a day decline in demand when compared with 2019, thereby reducing global oil consumption estimate to 99.9 million barrels a day in 2020.
“This is a sharp downgrade from the IEA’s forecast in February, which predicted global oil demand would grow by 825,000 barrels a day in 2020," the Paris-based agency said in its forecast.
The situation could turn worse.
“To account for the extreme uncertainty facing energy markets, the IEA has developed two other scenarios for how global oil demand could evolve this year. In a more pessimistic low case, global measures fail to contain the virus, and global demand falls by 730,000 barrels a day in 2020. In a more optimistic high case, the virus is contained quickly around the world, and global demand grows by 480,000 barrels a day," the IEA statement said.
The lowering of demand estimates comes in the backdrop of deepening concerns over the world economy tipping into a recession.
On 12 February, the Organization of the Petroleum Exporting Countries (Opec) grouping had slashed global oil demand growth by 0.99 million barrels per day (mbpd) in 2020, with the coronavirus outbreak in China accounting “for most of the downward revision". Demand was lowered by 0.23 mbpd.
This cut in demand estimates by IEA follows a price war unleashed by Saudi Arabia, post the unravelling of Opec-plus arrangement, which sent the oil markets in a tailspin. As a result, Brent crude prices cracked nearly 30% in early deals on Monday.
In the worst fall since the 1991 Gulf War, Brent had slumped to $31.02 a barrel. Goldman Sachs analysts expect prices may touch $20 per barrel mark.
Brent traded at $35.75 per barrel, a far cry from the high of $147 a barrel in July 2008. The West Texas intermediate (WTI) was at $32.58 per barrel.
Crude oil prices declined after Russia refused to agree to Opec’ proposal for an additional production cut of 1.5 million barrels per day (mbpd), amid the demand slump following the Covid-19 outbreak at the Opec plus meeting in Vienna on Friday. Russia’s decision was guided by geo-strategic play in denying the production cut benefits to US shale oil producers, in the run up to US presidential elections.
“The coronavirus crisis is affecting a wide range of energy markets – including coal, gas and renewables – but its impact on oil markets is particularly severe because it is stopping people and goods from moving around, dealing a heavy blow to demand for transport fuels," said Dr Fatih Birol, IEA’s executive director said in the statement.
“The situation remains fluid, creating an extraordinary degree of uncertainty over what the full global impact of the virus will be. In the IEA’s central base case, demand this year drops for the first time since 2009 because of the deep contraction in oil consumption in China, and major disruptions to global travel and trade," the IEA statement said.
The fall in prices has placed major consumers such as India at an advantage. Saudi Arabia accounts for around 10% of the total global supply of 100 mbpd and is the second largest supplier of crude and cooking gas to India.
Every dollar per barrel drop in crude oil prices reduces India’s import bill by ₹10,700 crore on an annualized basis. Retail prices of petrol and diesel in India track global prices, not crude, but are broadly linked to crude oil price trends.
Analysts have predicted a perfect storm in the energy markets that will help major consumers such as India manage inflationary and fiscal pressures. India is the world’s third-largest crude oil buyer, and the fourth-largest LNG importer.