Oil’s worst turbulence since ‘Black April’ has passed, the IEA says, even as coronavirus cases surge and inventories grow

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  • The worst of the oil market downturn from the coronavirus pandemic has passed, according to the International Energy Agency.
  • That outlook comes despite a resurgence in coronavirus cases and a massive crude oil inventory build-up.
  • The IEA said reimpositions of lockdowns in North and Latin America have been “casting a shadow” over its outlook for the second half of 2020, when it expects global oil demand to be down by only 5.1 million barrels a day.
  • The oil market has made some headway since “Black April,” when prices turned negative for the first time.
  • Visit Business Insider’s homepage for more stories.

The worst of demand destruction for oil has passed in the first half of 2020, the International Energy Agency said in its monthly report on Friday.

Global oil demand tumbled by 10.75 million barrels a day in the first six months of the year, and is expected to decline  by half that number at 5.1 million barrels a day in the remainder of the year, compared to last year, the agency said.

But a resurgence of new coronavirus cases is clouding its prediction.

“The strong growth of new Covid-19 cases that has seen the re-imposition of lockdowns in some regions, including North and Latin America, is casting a shadow over the outlook,” IEA said in a statement. 

The agency highlighted that the oil market has progressed since what it called “Black April” — when oil prices turned negative for the first time in history.

Recently, oil prices have been trading in a narrow bracket after new virus case counts signaled a potential aftershock for the commodity market. 

International benchmark Brent crude fell 1.1% to $41.88 on Friday, and US benchmark West Texas Intermediate fell 1.3% to $39.11.

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US crude inventories leaped by 1.75 million barrels to 545 million barrels in mid-June, according to a report by the American Petroleum Institute.

The inventory build-up floods the market with unwanted oil as demand continues to remain much below pre-virus levels.

The IEA said global oil production fell sharply in June to 13.7 million barrels a day, lower than its April level when the Organization of Petroleum Exporting Countries and its allies agreed to cut supply drastically.

Compliance rate with the OPEC+ supply agreement was 108%, IEA’s report said, with Saudi Arabia’s “overperformance” in cutting production by an additional 1 million barrels.

That sent OPEC’s output to its lowest in three decades.

In the second half of 2020, IEA expects supply to grow, US production to bottom out, and OPEC+ countries to ease existing cuts by around 2 million barrels a day from August.

Libya’s oil production may rise by almost a million barrels higher than current levels, the agency said.

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