The coronavirus will cause global oil demand to shrink for the first time in a decade

London(CNN Business) The amount of oil needed to run the global economy will decline sharply in the first quarter of this year as the coronavirus forces factories to close in China, snarls transportation and hits supply chains.

Global oil demand in the first three months of 2020 is expected to drop by 435,000 barrels per day compared to a year earlier, according to the International Energy Agency, the first quarterly decline in more than a decade.

The agency also marked down its forecast for oil demand growth for the whole of 2020. It is now expected to increase by just 825,000 barrels per day, the weakest annual pace since 2011.

The Paris-based agency said Thursday that the oil market was expected to move towards balance in the second half of 2020 as coordinated production cuts by OPEC and its allies removed excess supply. But the coronavirus has slammed demand, forcing the cartel to consider even deeper reductions in output.

The IEA said in its monthly oil report that the impact from the coronavirus was difficult to measure at this stage.

"The onset of [the coronavirus] will likely have a large impact on both the world's economy and oil demand," said the agency. "Consequences will vary over time, with the initial economic hit on transportation and services, likely followed by Chinese industry, then eventually exports and the broader economy."

Brent crude oil futures have tumbled by more than $16 — or roughly 23% — from their recent peak on January 8, reflecting fears that the coronavirus could be more damaging to the economy than the outbreak of SARS nearly two decades ago in China.

China has become an indispensable part of global business since the 2003. It's grown into the world's factory, churning out products such as the iPhone and driving demand for commodities like oil and copper. The country also boasts hundreds of millions of wealthy consumers who spend big on luxury products, tourism and cars. China's economy accounted for roughly 4% of world GDP in 2003; it now makes up 16% of global output.

The country is also the world's largest oil importer and the main engine of global oil demand growth.

"There is little doubt that the virus will have a larger impact on the economy and oil demand than did SARS," the IEA said in its report.

"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 added.