The Trump administration is downplaying the expected and massive negative impact the ongoing COVID-19 outbreak will have on world crude oil demand, placing it at odds with OPEC and its own U.S. Energy Information Administration (EIA), which is part of the Department of Energy.
Energy secretary Dan Brouillette, who oversees EIA, said the Trump administration for the moment optimistically believes COVID-19 hasn't developed into a cause of concern for global oil markets.
"At this moment, while we are seeing some slight reductions in production as a result of the virus, we are not yet concerned about its ultimate impact," said Brouillette to CNBC.
He said the Trump administration "is going to pay close attention to what is happening with the virus itself. We are still analyzing, not only the actual virus to learn more about it, but also the response to it."
"So, we are looking to see if the Chinese government will be able to contain or at least help contain the spread of the virus. At this moment, while we are seeing some slight reductions in production as a result of the virus, we are not yet concerned about its ultimate impact."
Asked why the Trump administration isn't more concerned given both OPEC and IEA both lowered their oil demand growth estimates for the year, Brouillette gave a puzzling reply.
"We have to put together very, very tough measures to contain the virus and if we do that effectively then I think you'll see the markets bounce back and you'll see the economies continue to grow."
On Wednesday, OPEC forecast weaker oil demand growth for the rest of 2020 due to significant demand destruction caused by the raging Covid-19 outbreak in China.
In a new report, OPEC identified the massive disruption to business in China -- the world's largest oil importer -- caused by the outbreak as the "major factor" behind its decision to slash its outlook for global oil demand growth to 0.99 million barrels per day (bpd) for the year.
This lower estimate is 230,000 bpd smaller than the previous month's projction. OPEC's Joint Technical Committee advising the producers has recommended a 600,000 bpd reduction in oil production to bring relief to the energy market. Oil industry analysts concur COVID-19 poses the greatest demand threat to the global oil industry since the Great Recession of 2008.
Oil demand from China has fallen sharply as local businesses scale back operations due to fears over contagion from Covid-19. China's oil demand is estimated to have fallen by a massive three million bpd. Analysts say the huge drop in oil demand this time was ignited by demand destruction and not over supply concerns as in the past.
For its part, EIA forecasts global oil market demand fundamentals to tighten this year due to the impacts of COVID-19 in China.
"EIA expects that travel restrictions in response to the coronavirus, along with the related economic slowdown in China, will reduce petroleum demand and keep crude oil prices below $60 per barrel through the first half of this year despite current disruptions to crude oil supply," said Linda Capuano, EIA Administrator.
In its monthly Short-Term Energy Outlook, EIA sees global oil supply continuing to outpace demand this year. It also lowered its forecasts for both production and consumption. EIA cut its 2020 oil demand forecast, predicting 825,000 bpd this year, the lowest level since 2011.
EIA now forecasts total global oil supply to average 101.97 million bpd in 2020 and total demand to average 101.74 million bpd, a 230,000 bpd gap. In January, EIA forecast total supply to average 102.37 million bpd and demand to average 102.11 million bpd, a 260,000 bpd difference.
