IEA warns rise in Covid-19 cases ‘casting a shadow’ over oil recovery

The resurgence of coronavirus cases in several parts of the world is “casting a shadow” over the oil market’s nascent recovery, the International Energy Agency has warned.

“In some countries, [the] accelerating number of Covid-19 cases is a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside,” the Paris-based body said in its monthly oil outlook.

Brent crude, the international oil marker, dropped below $20 a barrel in late March to an 18-year low. It has since rebounded to above $41 a barrel as supply curbs by major producer countries coincide with a demand recovery.

Yet worries about new cases of coronavirus and how this might affect any economic recovery and the outlook for fuel demand has kept prices in check. On Friday Brent fell more than 2 per cent to $41.39 a barrel.

Hong Kong suspended classes in schools again amid a resurgence in locally infected coronavirus cases over the past few days. In the US, meanwhile, more than 60,500 new cases were reported on Thursday in a new daily record.

“The recent increase in Covid-19 cases and the introduction of partial lockdowns introduces more uncertainty to the forecast,” the IEA said.

Global oil supply fell by 2.4m barrels a day in June to a nine-year low of 86.9m b/d. Production curbs from Opec and allies including Russia are taking place in conjunction with declines from other countries such as the US and Canada.

Since April, output has fallen by 14m b/d, the IEA said, but supply is expected to recover. Overall it is projected that worldwide supply could fall by 7.1m b/d in 2020 before rising by 1.7m b/d in 2021.

Global oil demand fell by a less than initially expected 16.4m b/d in the second quarter as governments imposed lockdowns and travel bans to curtail the spread of coronavirus. This is down from pre-crisis levels of about 100m b/d.

As demand recovers in countries such as China and India, over the course of 2020 these declines are expected to average 7.9m b/d and 5.3m b/d in 2021.

Concerns also persist about the elevated levels of oil stockpiles as demand for petrol, diesel and other refined fuels dropped earlier this year.

“If we take a bigger picture view of the market, what stands out to us is that we have not yet seen much of a decline on the global inventory front,” said analysts at JBC Energy.

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