The global oil demand which is 100 million barrels per day (bpd) could fall by 20 million bpd as 3 billion people in the world are locked down because of the spreading coronavirus (Covid-19), Fatih Birol, Executive Director of International Energy Agency (IEA) said late Thursday.
During a virtual fireside chat titled "Covid-19 and the Future of Energy Markets" hosted by Washington based Atlantic Council, Birol said that the oil market is going through a unique period in history.
"For the first time since decades, we see both the falling oil demand and huge oversupply at the same time. This is the reason we are seeing oil prices at $20 levels per barrel," he noted.
After first appearing in Wuhan, China last December, the Covid-19 has spread to at least 172 countries and territories. The World Health Organization has declared the outbreak a pandemic which caused 521,000 cases and the death of 23,500 around the world.
The novel virus led to decrease in global oil which also lowered the prices. The prices dropped further as Saudi Arabia-led OPEC and Russia-spearheaded non-OPEC could not agree on measures to further curb oil production.
"Global oil demand is in a free fall and the recovery will not be easy and quick," Birol warned adding that the demand fall will be much bigger in the 2nd quarter of the year while it could mark a 20% fall through out the year.
However, Birol said some key oil producer countries are planning to put additional oil production to the market meaning the 2.5 million output plan of Saudi Arabia, Russia and some other producer countries.
"This ongoing process will badly affect countries like Iraq, Algeria, Oman, Ecuador, Gabon, Nigeria of which economies are almost totally dependent on oil revenues," he said.
Birol said the revenues of Iraq, of which 99% of government budget comes from oil revenues, is only enough to pay half of the salaries of government employees leaving the other expenses on health, education and other issues aside.
- Producer countries should take more responsibility
"I call key producer countries to be constructive to stabilize the market. Saudi Arabia has always been a stabiliser country of the oil markets for several years. Now, being the president of this year's G20, one would expect Saudi Arabia to provide a constructive support for the stabilisation of the oil market," Birol said.
He said that key producers should take more responsibility in this process to take the necessary steps.
"During and after this period, we will see the true colors of the governments, leaders and businesses. I hope, all of us take the right position in the history in the mood of solidarity against this very unprecedented challenge," Birol said.
He also stated that Russia wants to wipe out shale oil production from the market adding that the price decline will lead a major decrease in shale oil production in the U.S. especially starting from the 2nd quarter of this year.
Birol said even though Russia is playing a Russian roulette, when the prices recover the shale oil production will bounce back strongly.
"Because the technology, know-how and geology for the shale oil is in the U.S.," he said.
Birol concluded that as a result of the current declining demand a additional output plans, the global oil storage capacities may get completely full very soon.
By Nuran Erkul Kaya