Global oil prices have slumped as traders judge that plans for the biggest production cuts in history will fail to offset the deepest fall in demand in 25 years.
US oil prices tumbled to 18-year lows of $19.20 a barrel on Wednesday morning and the benchmark price for Brent crude dropped by 5% to $28 a barrel amid gloomy forecasts for the world’s oil demand during the coronavirus pandemic.
The world’s energy watchdog warned the market to brace for the lowest oil demand in 25 years because of the global lockdown across 187 countries and territories to contain the virus.
Oil demand will this month hit its lowest levels for the year, according to the International Energy Agency, falling 29m barrels a day below last year’s average to levels not seen since 1995.
“Even assuming that travel restrictions are eased in the second half of the year, we expect that global oil demand in 2020 will fall by 9.3m barrels a day versus 2019, erasing almost a decade of growth,” the IEA said.
The fresh price falls come days after the world’s largest oil producers within the Opec cartel agreed with its allies and other G20 countries to cut up to 20m barrels a day from the world’s production from next month.
The IEA warned that there is “no feasible agreement that could cut supply by enough to offset” the impact of the virus on global oil demand but added that the plan was a “solid start”.
The IEA’s warning emerged hours after the International Monetary Fund predicted the deepest recession since the Great Depression because of the impact of the Covid-19 crisis.
The latest IEA report said the oil market is at its darkest moment in what will be a historic year for the global oil market because of the unprecedented global lockdown to try to contain the virus.
Over the second quarter of the year, demand for oil will fall 23.1m barrels a day below 2019 levels, before a gradual recovery over the second half of the year. By December, oil demand will be 2.7m barrels a day lower than at the end of last year.
Data commissioned by the Guardian earlier this month found that the coronavirus is likely to cut billions of barrels of oil, trillions of cubic metres of gas and millions of tonnes of coal from the global energy system and erase 2.5bn tonnes of carbon dioxide emissions from the fossil fuel industry.
This would be the biggest drop in CO2 emissions on record, in a single year eclipsing the carbon slumps triggered by the largest recessions of the last 50 years combined.
The sharp collapse in oil demand has already left the global market oversupplied with enough crude to overwhelm storage facilities in landlocked oil fields. In the US, oil inventories climbed by more than 13m barrels last week, according to the American Petroleum Institute; quicker than many analysts expected.
The IEA’s findings underline fears among major oil traders that the deal hammered out between Opec and its allies over the Easter weekend would prove “too little, too late” to prevent further oil price falls.
The plunging oil market price has forced oil rigs producing more than a million barrels a day to shut and wiped billions from the market value of the world’s biggest oil companies.
On Wednesday morning, shares in Royal Dutch Shell fell by almost 5% to £1,348p a share, while BP shares fell by 5.5% to 303.35p a share.
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