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More than half of global oil demand growth to be lost in 2020

Oil&Gas Materials 6 March 2020 12:44 (UTC +04:00)
More than half of global oil demand growth to be lost in 2020

BAKU, Azerbaijan, March 6

By Leman Zeynalova – Trend:

More than half of global oil demand growth is expected to be lost in 2020, Trend reports citing Rystad Energy, an independent energy research and business intelligence company.

The company said the impact on demand growth has been staggering, if not unprecedented, with February’s crude demand dropping by a shocking 4.6 million barrels per day (bpd), led by a 2.9 million bpd month-on-month drop in Chinese crude runs.

Rystad Energy’s pre-coronavirus global oil growth estimate was 1.1 million bpd for 2020, which we later slashed by 25 percent last month. “Our data now point to a much more pessimistic outcome, with growth likely to fall to merely 500,000 bpd, and this is assuming that the Covid-19 epidemic will largely be contained by the end of June, which in turn implies a further downside risk.”

At least 2 million bpd of supply needs to be removed from second quarter balances in order to see stabilization in oil prices, if Libya’s shut-in 1.1 million bpd production comes back online, the company believes.

The supply overhang from the first quarter will also have to be worked down before a recovery in price can manifest, according to Rystad Energy.

The company also made some predictions regarding the OPEC deal.

“In our no-deal scenario, which is the least likely of the three, OPEC does not agree on additional cuts and extends the current production agreement through 2020. Such a development would imply a huge surplus of 1.8 million bpd for liquids in the second quarter of 2020, and 1.9 million bpd for crude, which could send Brent prices as low as $40. In all of our scenarios, Libya’s production is assumed to return to its normal 1.2 million bpd in Apr-20,” said the company.

Deepening the cuts is a more likely outcome and Rystad Energy has two scenarios for an OPEC deal.

“In a low-level compromise, production cuts are only increased by 0.6 million bpd in the second quarter on top of an extension of the current production agreement, we see the stock of liquids building at 1.3 million bpd and crude at 1.5 million bpd. Brent would see continued downwards pressure and test the $50 mark quickly, with low 40s Brent prices a probability in the second quarter.”

“In the scenario aligned with OPEC’s proposal, production cuts are extended by 1 million bpd in the next quarter, on top of the current agreement’s extension. Large stock builds are still inevitable, with liquids reaching 1 million bpd and crude 1.1 million bpd for the quarter. Brent would continue to see downwards pressure with the $50 mark threatened when Libyan production returns, but the deterioration in oil prices may be halted in this scenario as long as Libyan output remains shut-in,” said the company.

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Follow the author on Twitter: @Lyaman_Zeyn

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