The market is signalling that some near-term demand for oil remains.
The Opec oil cartel on Wednesday lowered its forecast for growth in global oil demand this year by almost a fifth due to the impact of the coronavirus outbreak in China. "Lower-than-expected consumption in the OECD trimmed 2019 growth to 885 kb/d", the report said.
"We have cut our 2020 growth forecast by 365 kb/d to 825 kb/d, the lowest since 2011".
"While steps taken in China to reduce its spread were adopted earlier than in the SARS crisis and have been far more extensive, the profound transformation of the world economy since 2003 means China's slowdown today is bound to have a stronger global impact", it said in the report.
The outbreak has shuttered businesses and prompted the quarantine of tens of millions of people in China, the world's biggest crude importer. Its oil demand has nearly doubled since 2003 and represented more than three-quarters of global oil demand growth previous year.
In the second quarter it said it expected oil demand to grow 1.2 million barrels per day before normalizing in the third quarter with growth of 1.5 million bpd on likely economic stimulus measures in China. Prices have been plummeting since the beginning of the year, with the Brent and WTI benchmarks trading at $55.15 per barrel and $50.77 per barrel, respectively. Consumers are unlikely to benefit from the drop in fuel prices because the disease will inflict damage on the wider economy, the IEA said.
In the meantime, Russian oil producers favour extending oil production cuts rather than deepening them, S&P Global Platts reported on Friday, citing Russian oil giant Gazprom Neft's CEO Alexander Dyukov. Last month, OPEC was already pumping the least crude since the financial crisis of 2009, according to the IEA.
The OPEC+ alliance had already faced an oversupply in the first half of 2020 because of the ongoing output surge from USA shale-oil drillers, the agency said.
Overall, OPEC member production fell by 509,000 bpd in January amid supply disruptions in Libya and Iraq.