Illustration: Aïda Amer/Axios
There's simply nothing policymakers can do that will quickly fix the oil sector's woes, and events on Wednesday show why the path ahead is so difficult and will overwhelm some companies.
The state of play: The International Energy Agency issued an immense downward revision of its 2020 estimates for global oil demand, immediately putting even more downward pressure on oil prices, which have already been falling again this week.
- An International Monetary Fund report also shows how the crude price collapse is creating financial jeopardy far beyond America's oil patch.
- "Measured in real terms ... oil prices have not been this low since 2001. Oil prices at these levels could result in more than $230 billion in lost annual revenue across MENAP oil exporters compared with October projections, placing significant strains on fiscal and external balances."
- (MENAP refers to the Middle East, North Africa, Afghanistan, and Pakistan region.)
Why it matters: IEA's data and the price moves signal how even the big new OPEC+ supply-cutting pact and expected reductions from some G20 nations are getting overwhelmed by the effects of the coronavirus pandemic.
- The IEA praises those decisions, which should ease production by over 14 million barrels per day in coming months, as well as the plans of several nations to use strategic storage to mop up unwanted oil.
- They say these various efforts should help the industry come back from "the brink" of an even greater crisis.
But, but, but: "Even so, the implied stock build-up of 12 [million bpd] in the first half of the year still threatens to overwhelm the logistics of the oil industry — ships, pipelines and storage tanks — in the coming weeks," they note.
By the numbers: IEA now estimates that demand this month will be roughly 29 million bpd lower than the same period last year, and still off by 26 million bpd next month.
- That's pretty crazy in a world that typically consumes around 100 million bpd. This month's consumption levels were last seen in 1995, IEA notes.
- In June, "the gradual recovery likely begins to gain traction" and they see demand down by 15 million bpd.
- Their full-year estimate is a 9.3 million bpd reduction compared to last year, "erasing almost a decade of growth."
What's next: IEA's analysis explores how the situation could eventually improve.
- "There is no feasible agreement that could cut supply by enough to offset such near-term demand losses," the report states.
- "However, the past week’s achievements are a solid start and have the potential to start to reverse the build-up in stocks as we move into the second half of the year."
Go deeper: A world locked down and drowning in oil