© Bloomberg. Nearly-empty roads during a lockdown due to Covid-19 in Shanghai, China, on Tuesday, April 12, 2022. China hasn’t budged in its opposition to living with the virus even in the midst of the country’s worst outbreak, but its leaders are now pursuing an easier containment strategy in the uphill battle to tame the hyper-infectious coronavirus. Photogorapher: Qilai Shen/Bloomberg Photographer: Qilai Shen/Bloomberg
(Bloomberg) — The International Energy Agency cut its forecast for global oil demand this year after China reimposed lockdowns to contain the spread of a resurgent coronavirus.
With the weaker demand outlook and the massive release of emergency oil reserves by IEA members, the agency now sees global markets in balance for much of the year. Crude prices have already lost most of their gains since Russia’s attack on Ukraine, to trade near $100 a barrel in New York on Wednesday.
“Prices are now back to near pre-invasion levels, but remain troublingly high and are a serious threat for the global economic outlook,” the IEA said in its monthly report. While the market looks balanced now, “the outlook is mired in uncertainty.”
The Paris-based agency, which advises most major economies, lowered projections for world fuel consumption this year by 260,000 barrels a day, with a particularly steep reduction of 925,000 a day for China in April. Still, global demand remains on track to increase this year.
The IEA also dialed back estimates for the loss of Russian supplies from an international boycott over its military aggression. Production in April may be 1.5 million barrels a day lower than the prior month — roughly half the drop that was previously expected. Those losses may still double in May, the IEA said.
READ: Top Oil Merchant Vitol Will Stop Trading Russian Crude
Oil surged well above $100 a barrel following Russia’s attack on its neighbor. While prices have eased, they are still high enough to stoke inflationary pressures and exacerbate a cost-of-living crisis for millions of consumers. To counter this, IEA members announced last week that they will deploy 240 million barrels from emergency reserves, the biggest stockpile release in the agency’s history.
World oil consumption will expand by 1.9 million barrels a day to average 99.4 million a day this year, according to the IEA. China’s fierce “zero Covid” policy has diminished demand growth, as millions are locked down in their homes, imports drop and business activity slows in the world’s second-biggest economy.
The IEA noted that Saudi Arabia and other members of the Organization of Petroleum Exporting Countries have refused to open the taps faster, partly from a belief that markets didn’t face a genuine shortage, and partly to preserve the OPEC+ coalition they lead with Russia.
OPEC+ members managed to provide just 10% of the supply increase scheduled for March, according to the IEA. The 19 coalition members, which have been engaged in a pact to stabilize markets since the start of the pandemic, added a mere 40,000 barrels a day as diminished investment erodes production capacity across the group.
The clash over policy between OPEC+ and the IEA — which has openly expressed disappointment with the cartel’s inaction — came to a head last month with OPEC abandoning the agency as one of its data sources.