‘Black April’: IEA warns of ‘staggering’ demand drop in global oil markets

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The oil sector is in the midst of a month that will likely go down in the history books.

Demand for oil in April is forecast to drop by a record 29 million barrels per day (b/d), the International Energy Agency said Tuesday, part of a set of dire estimates that executive director Fatih Birol described as “staggering.”

“I believe, in a few years time, when we look back on 2020, we may well see it was the worst year in the history of global oil markets. And during that terrible year, the second quarter may well have been the worst of the lot. And during that quarter, April may well have been the worst month,” said Birol, on a call with reporters following the agency’s release of its monthly oil report.

“It may well go as ‘Black April,’ in the history of [the] oil industry.”

The IEA estimates total global oil demand for the year overall will drop by a record 9.3 million b/d, even with a recovery forecast for the second half of the year.

Prices fell sharply on Tuesday morning after the IEA announcement, with WTI dropping to a fresh 18-year low of $19.68/barrel, down 2.1% on the day by mid-morning London time. Brent was down 3.6% on the day, at $28.54/barrel.

April is forecast to see the most dramatic fall, as it coincides with the largest expanse of lockdowns worldwide and arrives before cuts by OPEC+ and other oil-producing nations go into effect in May.

With 100% compliance, those cuts could together total 10.7 million b/d from OPEC+. Another 3.5 million to 3.6 million b/d in cuts are slated to come from non-OPEC producers as part of a G20 deal, including the U.S., Canada, and Norway, according to IEA estimates.

Those OPEC+ cuts, agreed to earlier this week, are enough to take out a tenth of global oil supply, ending a monthlong price war that sent prices plunging to 18-year lows—and further devastated a sector that was already facing a historic drop in demand.

But even with those cuts, the market is facing a dire year. May is not forecast to be much of an improvement, with an estimated 26 million b/d fall compared with the same month last year, the IEA said.

Despite the cuts, Birol noted that storage was still tight—with the agency warning the sector could still run out of space by this summer—and prices could sink still lower, despite the cuts.

“In my view we lost two very important months in the oil industry, and we may well see prices getting some more downward pressure in the next weeks or months to come,” he said.

Together, this year’s drop will essentially wipe out the oil demand growth over the previous decade, Birol said.

Birol also warned against looking for a silver lining in the historic drop in oil demand.

“We expect this year there will be a huge decline in global CO2 emissions,” he said. “But in my view this is not a reason to celebrate, because this decline is happening because of economic meltdown, and the energy industry is in many areas almost collapsing, and people are losing their jobs.”

A poorly managed recovery, Birol added, could result in a sharp rebound in emissions.

In 2009, during the financial crash, emissions declined, he noted—only to rebound fourfold in the year to follow.