May 14, 2020 - Energy & Environment

Oil market forces "have demonstrated their power"

Equipment at a fracking well

Photo: Paul Ratje/AFP/Getty Images

Global oil production is dropping faster than expected as companies in North America and elsewhere curb output in response to the pandemic that has caused demand and prices to crater, the International Energy Agency said.

Why it matters: The monthly report this morning sounds guardedly optimistic notes about the stabilization of oil markets, noting that in addition to the production cuts, collapse in demand is slightly less dire than earlier predictions.

Between the lines: "Major uncertainties remain," the analysis warns. One is whether governments can successfully ease restrictions without sparking a resurgence of outbreaks.

  • Another is whether countries in the big OPEC+ group — which is led by Saudi Arabia and Russia — comply with their mid-April production-cutting pact.

The big picture: "It is on the supply side where market forces have demonstrated their power and shown that the pain of lower prices affects all producers. We are seeing massive cuts in output from countries outside the OPEC+ agreement and faster than expected," IEA said.

By the numbers: Output from nations that aren't part of the OPEC+ deal, led by the U.S. and Canada, was down by 3 million barrels per day in April compared to levels at the beginning of the year.

  • The decline could reach 4 million barrels per day in June, "with perhaps more to come," IEA said.
  • U.S. production alone could be 2.8 million barrels per day lower at year's end than it was at the close of 2019.
  • Meanwhile, IEA also trimmed its projection for demand loss. It now estimates that global demand this year will drop by 8.6 million barrels per day, lower than the prior projection of 9.3 million.

Go deeper: EIA forecasts U.S. oil boom will reverse amid coronavirus disruption

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