BAKU, Azerbaijan, March 10
By Leman Zeynalova – Trend:
The US JP Morgan Bank now expects global oil demand to contract by 2.6 million barrels per day (mbd) q/q in 1Q20, while China’s oil demand is forecast to fall 1.1 mbd q/q, Trend reports citing the Bank.
“We see oil demand for Asia-Pacific (ex. China) declining by almost 0.6 mbd y/y and project oil demand for Europe and North America to fall by 0.3 mbd y/y during the quarter. We do expect global oil demand to rebound by a tepid 0.8 mbd q/q in 2Q20 led by a recovery in Chinese oil consumption. However, gains are expected to be tempered by seasonal weakness and virus-induced drags to oil consumption in other regions such as Europe, Middle East, and North America. As a result, we now expect oil demand to remain unchanged compared to 2019 levels at 99.5 mbd during 2020. This amounts to a sharp downside revision compared to earlier expectations for 0.76 mbd growth y/y in 2020,” reads a report released by JP Morgan Bank.
The Bank expects that as the outbreak widens, the most severe impact on oil demand will be through aggressive travel curtailments.
“Efforts across the globe to contain the virus have already forced airlines to cancel flights, public gatherings to be suspended, and business conferences to be postponed. Passenger traffic is also certain to decline as a standard component of the public health emergency includes work-from-home arrangements. For example, a 35% contraction of world ex-China jet/gasoline/diesel consumption for a month (March) amounts to about 1.5 mbd contraction in world ex-China demand,” reads the report.
One of the major reasons of lower oil prices was the failure of OPEC+ to reach an agreement on further cuts.
“We expected OPEC+ to extend current supply quotas to end-December 2020 and add further cuts of 1 mbd in 2Q20. In the event, OPEC proposed a much deeper collective cut of 1.5mbd, which, however, was rejected by Russia and other non-OPEC partners. This has been compounded by the decision to not extend the Dec 19 supply cuts beyond 1Q. Although we highlighted this outcome as one possible scenario, we viewed this as a low probability event, with an implicit understanding OPEC+ would maintain the agreement at any cost. As a result, in principle, 2.1 mbd could be added to global supply from 2Q onward,” reads the report.
However, JP Morgan believes that it is likely that Saudi Arabia will maintain some cuts (0.4-0.5 mbd) it had committed to last December because of lower demand requirements from its key customers, including China. In this scenario, the oil market could see an average surplus of 1.6 mbd in 2020.
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