The outlook for oil is “even more fragile” than a month ago, according to the International Energy Agency (IEA).
The COVID-19 pandemic and more people working from home has led to a drop in demand, say analysts in IEA’s September report. A weak aviation sector also led to downward revisions for the third and fourth quarters.
The IEA has revised its outlook for global demand growth to 91.7 million barrels per day. This is a contraction of 8.4 million barrels per day year-on-year, more than the 8.1 million barrels per day contraction predicted by the agency in its August report.
Oil prices have been below $42 (£32.11) a barrel for the past month. Prices have been faltering for some time as the pandemic recovery continues.
The international benchmark Brent crude has been trading around $40 (£30.69) a barrel on Tuesday morning, which is slightly up about 1.5% since market open.
“The uncertainty created by COVID-19 shows little sign of abating,” said the IEA report. “In Europe, the number of new cases has risen as the holiday season ends, though the rate of hospitalisations and deaths is lower than seen earlier this year.”
National lockdowns starting to ease in various parts of the world has led to an initial sharp recovery in demand led by gasoline, but the curve later flattened out.
“It is becoming increasingly apparent that COVID-19 will stay with us for some time,” said IEA.
Adding further pressure is reduced Chinese crude buying, which the report states had provided strong support to the crude market since April, but has since slowed sharply for September and October deliveries. That left unsold barrels piling up.
Persistently weak refinery margins also provided less incentive to boost crude purchases, says IEA.
Overall, oil prices have dropped around 40% since the start of 2020.