- Demand for oil around the world will fall by around nine million barrels per day in 2020, OPEC said Wednesday.
- The oil producers’ group had previously said it expected demand to decline by 6.84 million barrels per day.
- Coronavirus has torpedoed demand for oil with international travel all but shut down, and manufacturing output greatly reduced.
- There were mixed signals, however, with Russia and Saudi Arabia holding a joint call on Wednesday to say there were signs of a pick up in oil demand in recent days.
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Global oil demand will contract by a third more than previously expected this year as the coronavirus tanks demand, OPEC said in its latest oil market report Wednesday.
Demand will drop by 9.07 million barrels per day in 2020, the oil producers’ cartel said in the report. That’s an increased drop of 33% compared to its previous estimates. Last month, OPEC said it was expecting a decline of 6.84 million barrels per day.
Oil has been ravaged by the coronavirus pandemic which has all but shut down international travel, and greatly reduced manufacturing output, in turn torpedoing demand for oil. US oil prices turned negative for the first time in April, while Brent crude, the international benchmark fell to a more than two-decade low.
The pandemic came at a time when global oil suppliers were already facing tumultuous times, with Saudi Arabia and Russia at loggerheads over production.
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Saudi Arabia increased its supply of oil in March, in a move to punish Russia for not agreeing to production cuts. The move sent the oil price tumbling and culminated the start of a bitter price war between the two nations.
This prompted the OPEC to summon its members and hold an emergency meeting last month and consider production cuts earlier than planned.
Saudi Arabia announced on Monday it will further cut production in an effort to support a sector completely battered by the coronavirus.
While OPEC expects demand to fall nine million barrels per day this year, Saudi Arabia and Russia held a phone call on Wednesday in which both countries acknowledged “recent signs of improvement in economic and market indicators,” especially in the growth of oil demand.
“We are also pleased with the recent signs of improvements in economic and market indicators, especially the growth in oil demand and the ease in concerns about storage limits as various countries around the globe begin to emerge from their stringent lockdowns,” the joint statement said.
Oil prices were not hugely impacted by either piece of news Wednesday. The price of US oil was virtually flat as of 12 p.m. ET, trading at $25.45 per barrel, a gain of 0.43%. Brent was up a similar percentage, trading 0.51% higher at $29.62.
Oil supply is dropping almost as quickly as demand
Oil supply growth forecast for the US was also downgraded by 1.3 million barrels per day by OPEC, meaning that oil supply will shrink by 1.4 million barrels year-on-year. It was previously expected to stay virtually flat compared to 2019.
Norway, Australia Guyana and Australia are the only countries who are set to face growth in oil supply in 2020, the report said.
The view that oil supply will be damaged was also voiced by Goldman Sachs last week.
Jeff Currie, head of commodities research at Goldman Sachs, said:”[Meat and oil] share something in common. You do damage to the supply, it takes a while to bring it back online again.”
Goldman Sachs is predicting oil demand to have a V-shaped recovery, while oil supply to have an L-shaped recovery as shutting in oil wells makes it difficult to get them back online.
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