Global oil supply will plunge by a record 12 million barrels per day next month following the conclusion of the OPEC+ deal to cut oil production, according to a forecast by the International Energy Agency. Oil demand, in turn, is expected to sink by a record 9.3 million bpd year-on-year in 2020.
"The OPEC+ production cut in May to reach the baseline will actually be 10.7 mb/d and not 9.7 mb/d, as April production was high. This will provide some immediate relief from the supply surplus in the coming weeks, lowering the peak of the build-up of stocks ... Other producers, with the United States and Canada likely to be the largest contributors, could see output fall by around 3.5 mb/d in the coming months due to the impact of lower prices, according to IEA estimates", the IEA said in its monthly report.
The IEA added that the demand for oil is likely to gradually recover in the second half of this year.
"If production does fall sharply, some oil goes into strategic stocks, and demand begins to recover, the second half of 2020 will see demand exceed supply. This will enable the market to start reducing the massive stock overhang that is building up in the first half of the year. Indeed, our current demand and supply estimates imply a stock draw of 4.7 mb/d in the second half", the agency stated.
Addressing the OPEC+deal to slash oil production, struck on Sunday, the agency said that this effort will not stabilise the market momentarily but will improve the situation conrcerning excessive supplies.
The organisation went on to say that China, India, South Korea, and the United States have either offered the oil industry storage for "unwanted barrels" or considered boosting their strategic stocks.
"This will create extra headroom for the impending stock build-up, helping the market get past the hump", the IEA said.
In March, Saudi Arabia triggered an oil price war flooding the market with cheap oil after OPEC+ had failed to reach an agreement on additional cuts.
The failed deal as well as the ongoing coronavirus epidemic sent markets reeling with oil prices sinking to record lows.
On Sunday, OPEC and non-OPEC countries agreed on a new deal to cut oil production. According to the pact, after 1 May, oil production will be slashed by 7.7 million barrels a day for six months, until 31 December. Starting in January next year, output will be reduced by 5.8 million barrels per day until April 2022.