Oil demand to shrink by 29 million barrels per day in April, IEA says

West Texas Intermediate price fell to its lowest level since 2002 on Wednesday

Global inventories at historically high levels are filling up storage space quickly. An oil tanker truck sits parked beside storage silos at the Erik Walther oil terminal in Germany. Bloomberg

Global oil demand could fall by 29 million barrels per day in April, one-third lower than in the same month last year and the lowest level since 1995, according to the International Energy Agency.

Oil demand for 2020 is expected to fall by a record 9.3m bpd in 2020, according to the Paris-headquartered IEA. The agency expects demand for the second quarter to be 23.1m bpd lower, on average, a deeper contraction than projected by other agencies.

Concerns over demand continued to weigh heavily on prices, with Brent crude down 8 per cent at $27.53 (Dh104.23) per barrel at 7.15pm UAE time after falling 10 per cent in the previous session.

West Texas Intermediate fell 3.5 per cent to $19.40 per barrel, its lowest level since 2002.

"The plunge in demand would be even more damaging for the industry without the historic recent steps announced by Opec+ and G20 countries.," said the IEA's executive director, Fatih Birol.

"They should lower the peak of the supply overhang and flatten the curve of the stock build-up. Demand may exceed supply in the second half of 2020," he said.

Earlier this week, Opec+ and the G20 entered into a historic accord that could see a supply contraction of as much as 20m bpd. Producers belonging to Opec+, which is led by Saudi Arabia, the world's largest oil exporter, and Russia are expected to cut 9.7m bpd in May and June. Tapered cuts are expected to hold until April 2022.

Following the agreement, global oil supply is expected to contract by a record 12m bpd in May, the IEA noted.

Total non-Opec output is expected to decline 5.2m bpd in the fourth quarter. For 2020 as a whole, supply is expected to be 2.3m bpd lower than 2019.

The IEA warned that its projected contraction in demand will erase a decade's worth of growth as the world braces for the worst recession in 90 years.

The International Monetary Fund warned on Tuesday that the global economy is set for its worst recession since the Great Depression. It projected a sharp contraction in global GDP of 3 per cent this year, with output for 2021 projected to be 5 per cent lower than previously estimated.

The Washington-based multilateral lender estimated Brent will average $35 per barrel this year and $45 per barrel next year.

There is "tremendous uncertainty" with respect to oil prices going forward, IMF chief economist Gita Gopinath told The National in an interview.

Economic activity is expected to resume in the second quarter of 2020, with an incremental pick-up in the demand for oil, according to Abu Dhabi Commercial Bank.

"If this is not the case, we see a need for deeper oil production cuts – without which Brent could fall below the $25 per barrel level," the bank said in a note on Wednesday.

"Global inventories [are] already envisaged to be at historically high levels and close to full," it added.