Gazprom Neft's oil refinery in Omsk, Russia. / Reuters
LONDON — Global oil demand is set to contract in 2020 for the first time in more than a decade as global economic activity stalls due to the coronavirus, the International Energy Agency said on Monday.
The downward revision came as oil prices dropped as much as third in their biggest one-day fall since the 1991 Gulf War after Saudi Arabia launched a bid for market share following the collapse of an output pact with Russia.
The energy watchdog said it expected oil demand to be 99.9 million barrels per day (bpd) in 2020, lowering its annual forecast by almost 1 million bpd and signalling a contraction of 90,000 bpd, the first time demand will have fallen since 2009.
The Paris-based IEA said in its medium-term outlook report that in an extreme scenario where governments fail to contain the spread of the coronavirus, which has affected over 100,000 people, consumption could drop by up to 730,000 bpd.
The virus has led to a sharp drop in industrial activity particularly in China and other Asian economies, as well as Italy, one of the worst affected places outside China. The virus has led to a slowdown in demand for ground and air transport.
IEA Executive Director Fatih Birol urged producers to "behave responsibly" in the face of the coronavirus crisis, after a deal on output restraint between OPEC, Russia and other producers collapsed last week, sending oil prices plunging.
"At such a time of uncertainty and potential vulnerability to the world economy... playing Russian roulette with the oil markets may well have grave consequences," Birol told reporters.
Saudi Arabia, OPEC's biggest producer, signaled it would pump more, sending oil prices down to levels that will place a strain its budget and those of other oil producers, and put a severe squeeze on producers of more costly U.S. shale oil.
Birol said the low oil prices could put many major crude producing nations such as Iraq, Angola and Nigeria under "huge" financial strain and fuel social pressures.
The IEA said that, following a shock to demand in 2020, oil consumption was likely to bounce back strongly and rise by 2.1 million bpd in 2021.
After that, it said growth was set to decelerate and rise by only 800,000 bpd by 2025 due to slower growth in demand for transport fuels as governments implement policies to improve car engine efficiency and push to cut greenhouse gas emissions.
"The coronavirus crisis is adding to uncertainties the global oil industry faces as it contemplates new investments and business strategies," Birol said.
While oil demand is set to gyrate sharply, the IEA kept its forecast for global oil supplies largely unchanged, with production capacity set to grow by 5.9 million bpd by 2025, marginally outpacing demand.
Production growth is set to come mostly from expansion in the U.S. shale output, as well as from rising output in Brazil, Guyana and Canada, the IEA said.
Expansion of production in Iraq and the United Arab Emirates would offset declines in Libya and Venezuela, so that output from the Organization of the Petroleum Exporting Countries would rise by 1.2 million bpd by 2025.