Just days after OPEC and its allies announced their big deal to rescue the global oil industry, it’s becoming brutally clear that all they’ve done is limit the worst of the damage. The largest coordinated production cut in history is already withering in the face of a demand collapse unlike anything the world has ever seen. After a brief rally, crude has already fallen back to an 18-year low in New York and everyone from the leaders of petro-states to the bosses of major oil companies is facing more financial pain from the coronavirus pandemic.
The dire state of the market was laid out in detail on Wednesday by the International Energy Agency. Oil demand is heading for the biggest annual collapse in history, with global consumption slashed by as much as a third this month by lockdowns aimed at containing the coronavirus. This summer the world may still run out of space to store unwanted crude — a worst-case scenario for the oil industry that could push prices even lower.
“In a few years time, when we look back at 2020, we may well see that it was the worst year in the history of global oil markets,” said IEA Executive Director Fatih Birol. The deal between the Organization of Petroleum Exporting Countries and its allies is helping the market, but the demand loss is so big that there is “no feasible agreement that could cut supply by enough” to offset it, the IEA said in its monthly report.
Almost a decade of oil-demand growth will be erased this year as consumption plunges by about 9 million barrels a day, the Paris-based IEA estimates. The largest hit will come this month, when fuel use will tumble by 29 million barrels a day to its lowest since 1995, the agency said.