Recently, market forces had shown how powerful they can be as regards crude supply but concerns remain over the potential for a second wave of COVID-19 infections, said The International Energy Agency (IEA) on Thursday.
Brent crude saw an around 1.8% up to be traded at $29.72 a barrel on Thursday morning with US West Texas Intermediate, higher up in price of 2% at $25.84.
However, an improved energy market resulted in oil prices rebound from the April lows that saw prices go in the negative direction of $40 a barrel. The April lows experience was described as the “Black April” in the oil sector by the Executive Director of IEA, Fatih Brol.
“Oil production is reacting in a big way to market forces and economic activity is beginning a gradual-but-fragile recovery,” the IEA said.
“However, major uncertainties remain.”
“The biggest is whether governments can ease the lockdown measures without sparking a resurgence of Covid-19 outbreaks,” the Paris-based energy agency added.
Another risk, the group said, was whether oil producers OPEC and its non-OPEC allies sometimes referred to as OPEC+, would achieve a high level of compliance with its agreed output cuts.
“These are big questions — and the answers we get in the coming weeks will have major consequences for the oil market,” the IEA said.
In its closely-watched monthly report, the IEA’s outlook for oil demand showed a fall of 8.6 million barrels per day to 91.2 million b/d this year. That’s 0.7 million b/d more than the group anticipated in its previous report.
This projected fall of oil consumption would be the biggest demand drop in history, the IEA said.
On the supply side, it expected a “spectacular” fall of 12 million b/d this month, falling to a nine-year low of 88 million b/d.
It comes after OPEC+ agreed to curb production by a record 9.7 million b/d in May and June. OPEC kingpin Saudi Arabia has since said it plans to cut output by an additional 1 million b/d to 7.5 million b/d in June.
“It is on the supply side where market forces have demonstrated their power and shown that the pain of lower prices affects all producers,” the IEA said.
“We are seeing massive cuts in output from countries outside the OPEC+ agreement and faster than expected,” it added.
The IEA said output cuts from countries outside the OPEC+ agreement, such as the US and Canada, meant output was 3 million b/d lower in April than at the start of the year. The group said it could be 4 million b/d lower in June, “with perhaps more to come.”
Global confinement measures to fall from a recent peak A global public health crisis has meant countries across the globe have had to shut down, with many governments imposing restrictions on the daily lives of billions of people.
The restrictions, which have created an unprecedented demand shock in energy markets, are expected to result in the worst economic downturn since the Great Depression in the 1930s.
To date, more than 4.3 million people have contracted the coronavirus, with 297,226 deaths worldwide, according to data compiled by Johns Hopkins University.
Some countries have sought to slowly ease lockdown measures, allowing some shops and factories to reopen.
The IEA said the gradual relaxation of restrictions was helping demand in energy markets. It estimated that the number of people living under some form of confinement measures at the end of May would drop to 2.8
billion worldwide, down from a recent peak of 4 billion.
However, the group stressed a resurgence of COVID-19 cases would constitute a “major risk factor” to oil demand.