Crude oil demand fell by 16.4 million barrels per day in the second quarter, when much of Europe and North America was in lockdown

Crude oil output last month hit a nine-year low as producers reacted to the plunge in demand triggered by the COVID-19 pandemic, but output is now set to recover, the International Energy Agency (IEA) said yesterday.

While the Paris-based IEA said that the resurgence of COVID-19 in parts of the world injected added uncertainty into forecasts, it sees the market turning a corner.

“During June, global oil output tumbled to a nine-year low” as OPEC and its allies cut production, and producers in the US and elsewhere reacted to continued relatively low prices and scaled back operations.

“From July, however, oil supply should begin to trend higher as producers react to signs of recovering demand as lockdowns ease,” the IEA said in its regular monthly report. “Futures markets are anticipating a transformation in the oil market from substantial surplus in the first half of the year to a deficit in the second half.”

The lockdowns adopted by nations earlier this year triggered an unprecedented drop in demand for crude oil as travel was restricted and many factories slowed or stopped production.

The IEA estimates global crude oil demand fell by 16.4 million barrels per day year-on-year in the second quarter, when much of Europe and North America was under lockdown, but as nations ease those measures, demand has been recovering, with the IEA pointing to strong rebounds in China and India in May.

As the second-quarter drop in demand was a bit less than it had earlier estimated, the IEA adjusted its forecasts.

It now expects global crude oil demand this year would average 92.1 million barrels per day, down by 7.9 million from last year, a slightly smaller decline than it forecast last month.

The better performance for this year translates into a slightly lower recovery of 5.3 million barrels per day next year to 97.4 million barrels per day in average demand.

“However, the strong growth of new COVID-19 cases that has seen the re-imposition of lockdowns in some regions, including North and Latin America, is casting a shadow over the outlook,” the IEA said.

From September it sees the drop in demand for gasoline and diesel to be nearly gone.

From that point lower demand by the aviation industry for fuel would be the major component of the overall drop in demand.

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