The International Energy Agency (IEA) said the outlook for oil is "still fragile" as the epidemic suppresses demand, while OPEC + plans to increase supply next year will unbalance global markets.
"Novel coronavirus pneumonia has been reported in many countries recently, and demand recovery is at risk of stagnation," the IEA said in its monthly market report.
Meanwhile, the market will get new supply in January as OPEC and its partners relax some measures to prevent oversupply. The Paris based agency says that once the valve is opened, there is very limited room for the market to absorb more supply.
The acceleration of the virus infection has led many market participants to wonder whether OPEC and its allies will increase supply from January. However, UAE energy minister mazruyi said on Tuesday that OPEC will continue to increase supply as planned.
Due to the huge impact of the epidemic on the economy, there will still be an unprecedented decline of 8% in global oil demand this year. In order to offset production cuts and support oil prices, OPEC + led by Saudi Arabia and Russia cut oil production sharply.
The IEA said the measures had achieved some results, consuming the world's inflated inventories at a rate of 900000 barrels a day in the third quarter, with London crude oil futures hovering above $40 a barrel. However, the report shows that the decline in inventories will slow significantly in the first half of next year.
OPEC + is expected to further ease production cuts after ending its biggest production cut in August. Under an agreement reached earlier this year, the 23 Member States will increase production by about 1.9 million barrels a day in January next year, and demand is expected to strengthen.
When these extra supplies of oil will slow the reduction in inventories. The IEA said the weakness in the spot crude oil market meant that the balance could easily be broken if demand slowed further or other oil producing countries increased production.
The uncertain outlook could lead to a decline in inventories, reflected in the fact that spot prices have weakened. OPEC + member states are scheduled to meet on Monday to discuss market prospects, and then finalize plans by the end of November.