LONDON: Opec yesterday again cut its forecast for 2020 global oil demand due to the “historic shock” delivered by the coronavirus outbreak, and said the reduction may not be the last.
The Organisation of the Petroleum Exporting Countries now expects global demand to contract by 6.9 million barrels per day (bpd), or 6.9pc, in 2020, it said in a monthly report. Last month, Opec expected a small increase in demand of 60,000 bpd.
“The oil market is currently undergoing historic shock that is abrupt, extreme and at global scale,” Opec said in the report.
“Downward risks remain significant, suggesting the possibility of further adjustments, especially in the second quarter,” Opec said of the demand forecast.
Oil has collapsed in 2020 due to the slide in demand, falling to an 18-year low of $21.65 a barrel on March 30. To try to shore up the market, Opec, Russia and other producing nations have agreed to a record supply-cut pact.
Opec expects the drop in demand this month to be the largest, seeing a contraction of 20m bpd. Crude was trading just above $28 a barrel after the release of the Opec report, paring an earlier gain.
Even so, Opec expects a smaller near-term impact on demand than the International Energy Agency (IEA), which on Wednesday forecast a 29m bpd dive in April oil demand, down to a level last seen in 1995.
Global oil demand is expected to fall by a record 9.3m bpd year-on-year in 2020, said the IEA.
For the second quarter of 2020, demand is expected to be 23.1m bpd below year-ago levels. The recovery in 2H20 will be gradual; in December demand will still be down 2.7m bpd, the IEA said in its Oil Market Report.
Global oil supply is set to plunge by a record 12m bpd in May, after Opec+ forged a historic output deal to cut production by 9.7m bpd from an agreed baseline level. As April production was high, the effective cut is 10.7m bpd.
Additional reductions are set to come from other countries with the US and Canada seeing the largest declines. Total non-Opec output falls could reach 5.2m bpd in 4Q20, and for the year as a whole output may be 2.3m bpd lower than last year.
Refining throughput in 2020 is forecast to fall 7.6m bpd to 74.3m bpd on sharply reduced demand for fuels. Global refinery intake is expected to plummet by 16m bpd in 2Q20, with widespread run cuts and shutdowns in all regions. Although refinery runs are falling, product stocks are still expected to build by 6m bpd. In 2H20, refining activity will slowly recover as the global market moves into deficit.
Early data show China’s implied stock build in 1Q20 at 2.1m bpd, and US stocks increased by 0.5m bpd. OECD data show that industry stocks in February fell by 35.4m barrels. Total OECD oil stocks stood 42.4m barrels below the five-year average and, due to the weak outlook, now provide 79.2 days of forward demand coverage. In March, floating storage of crude oil increased by 22.9m barrels to 103.1m barrels.
Global capital expenditure by exploration and production companies in 2020 is forecast to drop by about 32pc versus 2019 to $335 billion, the lowest level for 13 years.
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