OPEC is projecting a steep drop in demand for oil in 2020. The bloc says the COVID-19 pandemic, which continues to rage around the world, has cast doubts about 2021 recovery.
The pandemic has caused shocks in the global economy and is expected to cause a drop in demand for oil by 9.1 million barrels per day in 2020. This is a much larger drop compared to what the cartel had forecasted a month ago.
Global Economy Expected to shrink further
OPEC announced the new update in its Monthly Oil Market Report, which is closely watched worldwide. According to the oil bloc, the global economy is expected to shrink by 4% due to the pandemic’s impacts.
The pandemic has caused a sharp drop in economic activity in almost all countries around the world. This has caused a corresponding drop in demand for oil, as many industries are closed.
OPEC projects that global oil demand will go up by 7.0 million barrel per day. The bloc gave the projection in last month’s update.
“Crude and product price developments in the second half of 2020 will continue to be impacted by concerns over a second wave of infections and higher global stocks,” OPEC said in the report.
Although OPEC maintains its projection for 2021, the bloc said the outlook will largely depend on large uncertainties that could negatively impact oil consumption.
Stocks in OECD countries have been rising according to estimates by OPEC. As of June, oil inventories in developed countries stood at 291.2 million barrels above the latest five-year average.
Tackling drop in demand
To help mitigate the impact of the drop in demand, OPEC+, made up of OPEC and its allies agreed to cut supply by a record 9.7 million bpd. The U.S and other countries also agreed to cut their production.
The report noted that OPEC output in July was 23.17 million bpd, representing 980,000 bpd. This is after Saudi Arabia and other Gulf nations stopped extra voluntary cuts they had made in June.