The International Energy Agency (IEA) has forecast a 435,000 barrel per day (bpd) drop in global oil demand year-on-year for Q1 2020, due to the coronavirus outbreak. This is the first quarterly drop in demand in more than 10 years. The IEA cut its 2020 growth forecast by 365,000 bpd down to 825,000 bpd, which is the lowest since 2011.
In its Oil Market Report for February, the IEA noted that the impact of coronavirus on global oil demand would be "significant." Oil prices have already tumbled around $10 per barrel for Brent crude, down to below $55 per barrel, before stabilising at $57 as of writing.
Global supply fell by 800,000 bpd in January to 100.5 million bpd (mbpd). The blockade in Libya has slashed its production, while the UAE saw a 300,000 bpd drop in its output. Global output was steady, compared to 2019, as the drop in production from OPEC members was offset by a 2.1 mbpd increase in production from non-OPEC members.
"Before Covid-19 came along, the market was already nervous in anticipation of a supply overhang of 1 mb/d in the first half of 2020 due to continued expansion in the US, Brazil, Canada, and Norway," the IEA wrote in its report. "Even threats to security of supply, e.g. tension in Iraq, a 1 mb/d fall in Libyan oil production, and force majeure declared for some Nigerian cargoes, had little impact on prices. Now that the demand outlook has weakened, prices have moved significantly down."
Prior to the outbreak, producers were expecting the market to balance in the second half of 2020 in response to OPEC's production cuts, in place as of January 2020, the expectation of stronger demand, and weaker supply growth from non-OPEC members. After the outbreak began, OPEC's joint technical committee suggested further output cuts of 600,000 bpd, bringing the total cuts to 2.3 mbpd, as well as the additional 400,000 bpd that Saudi Arabia has elected to cut.