IHS Markit now expects that Q1 2020 world oil demand will decline by the largest volume in history—even exceeding the declines during the 2009 financial crisis. Owing to the unprecedented stoppage of Chinese economic activity in February and the spread of the coronavirus disease 2019 (COVID-19) outside of China, IHS Markit estimates that world oil demand in Q1 2020 will be 3.8 MMb/d lower than a year earlier. This represents a downward revision of 4.5 MMbd from previous estimates prior to COVID-19.
Never before has such a quarterly drop been recorded. The previous largest decline was when oil demand fell 3.6 MMb/d in Q1 2009. In another milestone event, the US Federal Reserve on Tuesday announced its first rate cut since 2008 that occurred outside a scheduled policy meeting.
“This is a sudden, instant demand shock—and the scale of the decline is unprecedented,” Jim Burkhard, Vice President and Head of Oil Markets, IHS Markit, said.
Additional observations from the IHS Markit Crude Oil Market Service include:
- Most of the demand decline is in China, but demand elsewhere, including Europe, Japan, South Korea, the Middle East, and North America, has been revised down.
- COVID-19 cases outside of China continue to accelerate, which means that the negative demand impact will continue into Q2.
- Demand for all refined products is negatively impacted, but especially for gasoline in China because of the steep decline in road travel as a result of government restrictions and for jet fuel due to flight cancellations within China and the long-haul routes to and from Asia. In China, commercial passenger trips by road, rail, air, and water were down 80% in February compared with a year ago.
- OPEC production is at a 17-year low and could drop even further as oil buyers cut purchases in March and April. But the decline in output is still less than the decline in demand, which means oil inventories are likely to experience a large increase, particularly in China and the Middle East, unless OPEC at its ministerial meeting later this week cuts production in a major way.
- It now appears likely that oil demand will be less than in 2019, even if there is a recovery in the second half of 2020.