Oil supply is expected to fall to a nine-year low this month, the International Energy Agency said, as global producers make big cuts to offset a record collapse in demand.
May production is expected to fall by 12m barrels a day, the Paris-based body said in its monthly report following supply reductions from oil-producer group OPEC and Russia — together the so-called OPEC+ group. “Massive cuts” from other countries including the US and Canada are also being made faster than initially anticipated, according to the report.
“It is on the supply side where market forces have demonstrated their power and shown that the pain of lower prices affects all producers,” said the IEA. Total supply is expected to be 88m b/d in May.
Output from non-OPEC+ countries is forecast to be 4m b/d lower by June with the US — by the end of the year — anticipated to be the biggest contributor to the reductions, with output down 2.8m b/d compared with the end of 2019.
Although Saudi Arabia — OPEC’s largest producer and the world’s biggest exporter — is bringing supply down by more, that is from a record high reached in April as it engaged in a price war. The kingdom’s year-on-year cut from the end of 2019 will be 900,000 b/d.
In April, US President Donald Trump put pressure on the kingdom to end a strategy of flooding the market with cut-price crude after US shale executives lobbied Washington, saying the drop in oil prices was crippling the domestic industry.
OPEC and Russia agreed last month to curb supply by 9.7m b/d from May, with Saudi Arabia and several Gulf allies announcing additional voluntary curbs in recent days.
President Trump held discussions with the Saudi king about oil markets coinciding with a series of announcements about austerity measures by the kingdom as the oil-rich nation seeks to limit the economic pain of lower prices.
The IEA said the outlook for the oil market had improved, due to supply cuts and better signs for demand as lockdown measures were loosened. Oil prices have rebounded since Brent crude, the international marker, plunged to an 18-year low below $20 a barrel last month. Brent has risen more than 3 per cent to above $30.
The IEA said the drop in oil demand this year, although the biggest fall ever, would not be as severe as initially thought, but it warned that a resurgence of outbreaks was a risk to a “gradual-but-fragile” recovery.
Oil consumption will slide by 8.6m barrels a day, which is lower than last month’s forecast of 9.3m b/d. This will take total demand in 2020 to 91.2m b/d, from about 100m b/d last year.