By Stephen Cunningham
“I am going to announce it Monday morning in Paris,” IEA chief Fatih Birol told a Congressional hearing in Washington on Thursday. “The impacts are already severe mainly because the transport sector is heavily affected.”
Last month, the Paris-based adviser to industrialized nations warned that the virus could curb annual growth in oil consumption to the lowest since 2011, but still called for 800,000 barrels a day of growth. Other analysts are now estimating that demand will contract, with Goldman Sachs Group Inc. predicting that consumption could shrink this year for only the fourth time in almost 40 years.
Birol’s appearance before the Senate Energy and Natural Resources Committee came on the same day that an OPEC meeting in Vienna paved the way for a production cut of 1.5 million barrels a day, which still needs to overcome Russian opposition. The hit to demand has already seen prices slump around 23% so far this year.
The IEA will set out two scenarios when it updates forecasts next week, one of which is a base case that will reflect the current impact. “We will have also a worse case because we may well see that this situation may go global beyond China and this may well affect energy markets, especially oil markets, substantially,” Birol said.
In written testimony to the committee, Birol said it’s already clear that the outbreak is “negatively affecting global economic activity and that the IEA is “monitoring the situation extremely closely.”
Birol said recent supply losses — from Libya, Venezuela, and Iran – would have delivered “painful shocks” to the world economy were it not for the U.S. shale revolution. Under one scenario laid down by the IEA, higher U.S. output reduces the market share of OPEC members and Russia to 47% of total oil production in 2030 from 55% in the mid-2000s.
However, Birol cautioned that the shale sector wouldn’t be spared in the event of a prolonged plunge in prices due to the virus.