Global oil demand will suffer its first quarterly drop in a decade as the COVID-19 virus lashes the economy in China and its impact ripples throughout the world, the IEA said Thursday.
"Global oil demand has been hit hard by the novel coronavirus (COVID-19) and the widespread shutdown of China’s economy," the International Energy Agency said in its latest monthly report.
"Demand is now expected to fall by 435,000 barrels year-on-year in the first quarter of 2020, the first quarterly contraction in more than 10 years" when it dropped during the global economic crisis, it added.
While the IEA still expects demand for oil to grow for this year as the outbreak is contained, it slashed its forecast for the increase in global consumption by nearly a third to 825,000 barrels per day, the smallest increase since 2011.
The outbreak of the new coronavirus spurred China to take drastic measures such as placing in quarantine over a dozen cities and extending the Lunar New Year holidays in order to try to stem its spread, nearly shutting down key parts of its economy.
Although markets have rebounded in recent days as investors grew confident that China could quickly contain the virus and its economic impact would be short lived, the IEA warned against complacency by comparing today's crisis to the 2003 SARS outbreak.
"While steps taken in China to reduce its spread were adopted earlier than in the SARS crisis and have been far more extensive, the profound transformation of the world economy since 2003 means China’s slowdown today is bound to have a stronger global impact," it said in the report.
The IEA noted that since 2003 China has become more integrated in global supply chains, its tourism sector has dramatically expanded and Chinese are the largest contingent of world tourists, and the country's share of global GDP has jumped from 4 to 16 percent.
Oil prices fell on Thursday after OPEC and IEA reports cut back demand forecasts for this year.
Brent crude lost 65 cents to $55.14 a barrel by 0930 GMT while US West Texas Intermediate (WTI) was down 39 cents at $50.78.
On the supply side, the Organization of Petroleum Exporting Countries (OPEC) lowered its 2020 demand forecast for its crude by 200,000 bpd, prompting expectations that the producer group and its allies, known as OPEC+, could agree further cuts when they next meet, possibly as early as this month.
