Oil demand to plunge to 25-year low, IEA warns

Global demand for oil will plunge by as much as 29m barrels a day in April to a 25-year low, the International Energy Agency said as it warned no output cut could fully offset the short-term drop in demand.

Demand in April will fall year on year to a low last experienced in 1995 with economies in many countries contracting severely, the IEA said. The agency predicted another steep decline of 26m barrels a day in May.

Even if travel restrictions are lifted in the second half of 2020, annual oil demand will fall by 9.3m barrels a day, wiping out almost a decade of growth, the IEA said.

The price of Brent crude fell by more than two thirds in March as the Covid-19 crisis spread across the world, putting economies into lockdown and restricting travel. At the weekend OPEC and other countries including Russia resolved differences to announce a cut in output of 9.7m barrels a day from 1 May.

The IEA said any recovery in demand would not begin until June and that demand would still be well down on a year earlier. By reducing the supply overhang and flattening the buildup of oil stocks the measures will help the system absorb the worst of the crisis, it said.

"There is no feasible agreement that could cut supply by enough to offset such near-term demand losses," the agency said. "However, the past week’s achievements are a solid start and have the potential to start to reverse the build-up in stocks as we move into the second half of the year."

The IEA said it was still waiting for details on some proposed production cuts and purchases to add to reserves by countries such as the US, India, China and South Korea.

“If the transfers into strategic stocks, which might be as much as 200m barrels, were to take place in the next three months or so, they could represent about 2 million barrels per day of supply withdrawn from the market,” the IEA said.