The International Energy Agency (IEA) has warned that the recovery of global oil demand could be agitated by the resurgence of the novel coronavirus.
In the agencies monthly report, they anticipated a sharp rebound in demand over the next three months as economic activities resume because the collapse in fuel consumption during the second quarter was slightly less severe than previously estimated.
The report also predicted that bloated inventories will decline as the Organization of the Petroleum exporting Countries (OPEC) and its allies continue with vast production cuts.
Although predictions have been made and the demand expectations are being anticipated, the IEA cautioned that the outburst of the virus, raging across several U.S. states and re-emerging in Asia, is not going to make things go as planned.
“We started the second half of this extraordinary year hoping that the worst of the oil market turbulence is behind us. A recovery in economic activity is shown by various indicators, including improved mobility in many regions. However, the strong growth of new Covid-19 cases that has seen the re-imposition of lockdowns in some regions, including North and Latin America, is casting a shadow over the outlook. Only time will tell if the economic impact will be serious”.
Oil fell 1.4% to $39.06 a barrel at 7:20 a.m. in New York, heading for a weekly loss.
The IEA also said that the risk to their market outlook is almost to their disadvantage because of the increasing number of the coronavirus cases.
“While the oil market has undoubtedly made progress since “Black April”, the large, and in some countries, accelerating number of Covid-19 cases is a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside”.
The prices of international oil is seen to have more than doubled from the lows reached in late April, as fuel use picks up and crude supplies are reined in. The shockwaves of the coronavirus crisis are however still being felt.
The Global oil demand according to report is on track to fall heavily by about 8%, this year as lockdowns and the economic contraction reduce the demand for products like jet fuel and gasoline. Although is it being seen as a record loss it is still good prior the anticipation of an 8.3 million barrels drop a day last month.
According to the agency an expected worldwide consumption should now pick up by about 14% from the previous three-month period, going into the third quarter because of the revival in economic activity after global oil supply was seen to have dropped to a nine-year low of 86.9 million barrels a day last month.
The IEA said that, the 23-nation OPEC+ alliance, led by Saudi Arabia and Russia, has pledged unprecedented output reductions amounting to almost 10% of world supplies in a bid to rebalance markets and augment prices. In a bid to fasten the recovery process, the coalition has cut even more than promised in June as the Saudis made additional reductions. They are also hopeful of a growth in oil supply.
“ However, in the second half of the year supply could start to grow: we see US production bottoming out and then slowly growing and OPEC+ countries are set to ease their existing cut by around 2 mb/d from August”.
