The International Energy Agency has trimmed down its demand outlook for the first three months this year, seeing that world oil consumption will shrink for the first time in more than 10 years.
The IEA has dramatically adjusted its oil demand projection, anticipating global consumption to decrease by 435,000 barrels per day, the first outright drop year-over-year since the world financial turmoil hit markets over a decade ago.
Capital Economics noted that focus will be on the level of flash manufacturing purchasing managers' indices for February, especially those in the Asian sector, as IEA's estimates should provide an early barometer of how weak demand is impacting global manufacturing supply chains.
Analysts expect global manufacturing and oil inventory data to be sluggish, but if they are better-than-estimated then prices of industrial commodities could see further increases.
Government-operated refining firm ChemChina disclosed that it would reduce refining output by 100,000 barrels per day. The total refining cuts now total 1.5 mb/d as refining crude oil has become a loss-making business, Reuters reported, and "it's better to store crude oil instead of refining it," sources told Reuters.
Figures released by the IEA are based on a projection that China's economy will return to normal in the second half of the year.
Capitalists are also expecting that the Organization of the Petroleum Exporting Countries and its member states, including Russia, will give the green light for a plan to further hike production cuts in an effort to regulate the world stockpiles and support oil prices.
The group, also referred to as OPEC Plus, has a deal to reduce oil production by 2.1 million bpd until the end of March.
Global expectations for demand are still somehow a guess work. A Reuters survey looks at actual import figures from mainland China and discovered that in the first two weeks this month, China imported 7.58 mb/d of oil, down from 8.88 mb/d from last year.
On the other hand, money markets may not be advancing, but the rally in bonds on Friday indicates that investors are becoming optimistic that the worst may be over.
The IEA pointed out that the oil market was already on track to stabilize into the second quarter of the fiscal year, with a decent volume of surplus in existing inventories. Still, more than half million barrels per day of shortfall would not be enough to cushion the gap, at least in the first half of 2020.
