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SunSirs: Energy, IEA: Oil Demand May Exceed Supply in the Second Half of 2020

April 17 2020 11:03:56     SunSirs (Selena)

According to Oil & Gas Journal on April 15, the International Energy Agency (IEA) said in its oil market report in April that if oil production droped sharply, some oil enters strategic reserves and demand began to recover, then there would be a shortage of supply in the second half of 2020.

On April 12, OPEC+ group crude oil producers agreed to reduce their initial production by 9.7 million barrels/ day from May 1. At the same time, the G20 expressed support for OPEC+ member countries' efforts to stabilize the oil market and, in some cases, discussed immediate or over time production cuts.

According to the IEA, the actions of OPEC+ and G20 will affect the oil market in three aspects.

First, in order to reach the benchmark, OPEC+ will cut production by 10.7 million barrels/ day in May, rather than 9.7 million barrels/ day, because of higher production in April. This will provide some immediate relief from oversupply in the coming weeks, reducing the peak of inventory build-up.

Second, the four countries (India, South Korea and the United States, etc.) either provide strategic reserve capacity to the industry to temporarily store oil that is not needed, or consider increasing strategic reserves to take advantage of falling prices. This will create additional space for the upcoming stock market rally and help the market through the trough.

Third, the IEA estimates that production in other producers (the US and Canada are likely to be the largest contributors) could fall by about 3.5 million barrels/ day in the coming months due to the impact of lower prices. This reduction in supply, coupled with OPEC+ production cuts, will turn the market into profit in the second half of 2020, ensuring the end of inventory accumulation and the return of market conditions to a more normal level.

 

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