The International Energy Agency (IEA) said on Tuesday that demand for crude oil is likely to suffer the biggest decline in the second quarter since the Covid pandemic wreaked havoc on the global economy in 2020. The agency said in its monthly report that rising prices due to the war in West Asia will force many countries and industries to reduce oil use, and as shortages and high prices persist, demand destruction will spread.
How much will demand fall?
The agency said its projections are based on a “base case” that assumes oil shipments through the Strait of Hormuz will resume in May. Tehran has effectively closed this route since the US and Israel began bombing Iran on February 28. The IEA said this would lead to a decline of 1.5 million barrels per day in oil demand in the second quarter, which would be the biggest decline since the huge decline in fuel consumption due to Covid-19. Total demand is expected to decline by 800,000 bpd in March, and by 2.3 million bpd in April.
IEA gave a big warning
The IEA said that if the strait remains closed, a “longer-term scenario” could lead to an even steeper decline in oil demand. The agency warned that in this situation, energy markets and economies around the world will have to prepare for huge disruptions in the coming months. The agency also said that Russia has been the biggest beneficiary of the disruptions in the Middle East.
Russia’s earnings increased
Russia nearly doubled its oil export earnings in March as the US eased sanctions on Russian crude to help cushion the impact of rising energy prices. The IEA said Russia earned $19 billion last month as exports of crude oil and oil products rose to 7.1 million barrels per day from 320,000 barrels per day in February.
