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Debate Rages Over Global Oil Demand

Debate Rages Over Global Oil Demand

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Geopolitical Risks Loom Large Over Oil Markets

Geopolitical Risks Loom Large Over Oil Markets

Geopolitical risks are looming large…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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April Could Be Worst Month Ever For Oil

Oil tanks

Oil producers are facing their worst crisis in history, but the market is not at a bottom yet, according to several analysts.

The millions of barrels of additional supply promised by Saudi Arabia will take time to reach their destination. On the demand side, major economies have only begun to slow down, and the gaping hole where the economy once stood is expected to widen. A growing number of analysts say that the global economy is already in a recession.

“Even just a week ago, it was difficult to imagine how oil market conditions could become significantly weaker,” Standard Chartered wrote in a note. “However, over the past week the restrictions placed on mobility by European and North American governments as part of their coronavirus response have significantly magnified the negative demand shock.”

Analysts say that the month of April could see the largest supply overhang in the history of the oil market.

“We now expect the y/y demand loss to peak in April at 10.4 million barrels per day (mb/d), and annual demand to fall by a record 3.39mb/d in 2020,” Standard Chartered wrote in a note.

In the short run, the oil market surplus could reach a peak of 13.7 mb/d in April, Standard Chartered said, with an average surplus of 12.9 mb/d for the second quarter. The inventory buildup could reach a gargantuan 2.1 billion barrels by the end of the year, “stretching the midstream of the industry to its limits,” the bank wrote. That figure represents an upward revision of 50 percent from the 1.4-billion-barrel inventory surplus the bank predicted…just a week ago. Related: Russia Sees Oil & Gas Income Fall By Almost $40 Billion

Other analysts have even more dramatic scenarios. Eurasia Group says demand could fall by as much as 25 mb/d in the next few weeks and months. The historic glut means that the world could run out of storage space. “The combination of weakening demand and excess supply is hardly going to be accommodated by onshore storage,” Giovanni Serio, head of analysis at Vitol, told the FT. “At a certain point…we will need to fill all the boats.”

The downturn could lead to more than 200 bankruptcies just in the European oilfield services sector, according to Rystad Energy, or 20 percent of total firms in the sector.

Goldman Sachs said WTI could fall to shut-in price levels at between $23 and $26 per barrel, and in fact, the bank cut its forecasted second quarter price for Brent to $20 per barrel, down from $30 previously. In early trading on Wednesday, WTI plunged 11 percent to around $24 per barrel and prices collapsed during the day, falling 25% before recovering some lost ground.

“As front-end prices weaken under the weight of the accumulated surplus oil stockpile, we expect the contraction of activity in the US shale oil industry to accelerate,” Standard Chartered said. The bank forecasts U.S. oil production at 11.87 mb/d in December 2020, down 1.1 mb/d from current levels. In 2021, Standard Chartered said the U.S. may average 11.2 mb/d, exiting the year in December 2021 at 10.69 mb/d. Related: Russia Needs Higher Oil Prices, But Won't Surrender

On Wednesday, Halliburton said it was going to furlough 3,500 workers in what will surely be the first in many, many cuts to payrolls.

Up until only recently, most analysts assumed the global pandemic would be a short-term affair. Many lockdown procedures have been billed as temporary closures, typically in the range of two to four weeks. But the pandemic may last much longer – some scientists suggest social distancing may be imperative for more than a year – and some of the economic scars could be permanent.

The U.S. Congress is preparing helicopter money in an effort to tide millions of people over for the next few weeks, but that too will not be enough.


While April may see the worst of oil demand destruction, Standard Chartered says year-on-year demand could fall by 8.8 mb/d in May and 7.4 mb/d in June. And even after the pandemic passes, there will be an “element of persistent demand loss…driven by permanent changes in air travel behaviour and the demand implications of businesses unable to recover from the initial shock.”

By Nick Cunningham of Oilprice.com

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Leave a comment
  • Brian Bresee on March 18 2020 said:
    All this talk about $10/barrel oil is much like the frenzied reaction to the Corona virus, not founded in facts. In this high stakes poker game called oil price management, Russia has been playing Saudi Arabia as a chump for a long time, pressing them to take on the by far largest production cuts to boost prices, to their own advantage.

    Ending their role as Russia's chump, Saudi Arabia is now again demonstrating to the world what they can single handedly do to the price of oil. This is not something they will do very long with the harm it causes to their economy, along with all other oil producers. Their goal was to send the price of oil as low as possible as quick as possible, to send the clearest message, for which they have succeeded. I doubt they will actually flood the world with oil after April 1rst, talk alone served their purpose.

    Russia, for their own economy, will soon seek to patch up the bromance with new respect, which will cause the price of oil to skyrocket from current levels when announced. The United States producers will have also been corrected, with a few filing bankruptcy, and the rest moving forward with much more restraint on new projects.

    The Corona virus scare will also quickly pass in a few days, returning the use of oil and its price back to the $40/barrel range where it was when Corona virus first cause problems for the price of oil.
  • Don Lapre on March 19 2020 said:
    Nicholas it was too many years ago you were writing about peak oil and now we can’t even give it away. I hope oil goes to $2 a barrel and crashes the EV market.
  • Mamdouh Salameh on March 19 2020 said:
    The world has never ever faced such a more lethal and destructive combination of coronavirus outbreak, global recession, huge glut in the global oil market and an oil price war in the last fifty years.

    It is no exaggeration to say that what is happening now has unimaginable implications that nobody has ever thought they could face the world in the 21st century short of a nuclear war including starvation, total bankruptcy of the global economy and a complete collapse of law and order.

    Until the coronavirus outbreak is completely controlled, the world would continue to face huge challenges on daily bases.

    That is when countries should put national pride aside and have their scientists pool all their efforts to develop an anti-coronavirus vaccine.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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