As the COVID-19 becomes an official pandemic and oil prices plunge amidst a global price war, questions are emerging regarding the impact of these developments on climate and energy policy.
The International Energy Agency said in a report on Monday that in a worst-case scenario — if the coronavirus continues to spread globally and China’s need for oil remains subdued — global oil demand could fall by as much as 730,000 barrels a day in 2020.
The agency says its base case is for a slump in demand of around 90,000 barrels a day, assuming that the situation in China improves in the second quarter.
“While the situation remains fluid, we expect global oil demand to fall in 2020 — the first full-year decline in more than a decade — because of the deep contraction in China, which accounted for more than 80% of global oil demand growth in 2019, and major disruptions to travel and trade,” the IEA said in its March oil market report.
The Organisation for Economic Cooperation and Development (OECD) expects the coronavirus outbreak to slash world economic growth this year to its weakest level since 2009. It was in 2009 that the fallout from the global financial crisis threw the economy into recession.
The coronavirus pandemic has now infected more than 108,000 people globally and killed more than 3,800. An increase in measures to contain the virus outside China, including travel restrictions within Italy, is hammering stocks and intensifying fears of a recession.
The IEA Oil 2020 report said that the “visible decline in transport, industrial and commercial activity” points to a drop in global oil demand of 2.5 million barrels a day for the first quarter, compared to the same quarter last year. Of that, China would account for 1.8 million barrels a day.
“The immediate outlook for the oil market will ultimately depend on how quickly governments move to contain the coronavirus outbreak, how successful their efforts are, and what lingering impact the global health crisis has on economic activity,” the IEA said.
IEA Oil 2020 report fails to reflect climate emergency
In response to the IEA Oil 2020 report Kelly Trout, senior research analyst at Oil Change International, said the report should come with a warning label as an unfit guide to the climate change emergency.
Trout said: “The IEA ignores the reality that tackling the climate crisis will require a fundamental transformation of energy markets, and the managed decline of fossil fuel production and use within this decade. Rather than anticipate continued growth in oil demand, the IEA should be providing governments with a roadmap for shifting their economies to renewable energy at the speed required to limit warming to 1.5 degrees.”
She added: “Limiting warming to 1.5 degrees will require governments to put a stop to oil and gas expansion and proactively manage the phase-out of fossil fuels in a way that ensures a just transition.”
On the outlook for the US shale market in the context of volatile international oil market, Lorne Stockman, senior research analyst at Oil Change International, said: “The oil price shock will claim casualties in the US shale plays, but it won’t put an end to the reckless expansion of fracking, particularly in the Permian Basin.
“While a rash of bankruptcies could slow expansion for a while, it will also trigger a fire sale of distressed assets that could lead to cheaper production in the long run. The carbon bomb that is the Permian Basin will only be diffused by policy action, rather than short-term market volatility.”