BAKU, Azerbaijan, April 6
By Leman Zeynalova - Trend:
Downward pressure on oil demand will be more severe in the next few weeks, Trend reports citing Wood Mackenzie.
“Our Macro Oils service forecasts global liquids demand will drop by 8.1 million b/d on average to 90 million b/d in Q2 2020 year-on-year, and a meaty 10 million b/d from the all-time peak of 100 million b/d in Q3 2019. It’s an unprecedented drop,” said the company.
The averages don’t begin to tell the whole story – the downward pressure on demand is likely to be more severe in the next few weeks as containment measures peak.
“Chinese oil demand fell by 19 percent year-on-year in Q1; but the February fall at peak Covid-19 was 35 percent. In Q2, other big oil-consuming economies in Europe and the US will feel the full effect of the lockdown on gasoline and jet fuel in particular. At times during Q2, global demand could drop by more than 10 million b/d, depending on how the lockdowns progress,” reads the report.
As for oil prices, Wood Mackenzie expects Brent to average $20/bbl in April and possibly, at times, to dip lower.
“Thereafter, much depends on how long demand is suppressed by the effects of Covid-19. We forecast demand bounces back in H2 2020, and the savage cuts in upstream investment in the last few weeks will lead to a progressively lower outlook for supply into 2021,” reads the report.
A degree of market rebalancing beginning in Q3 could push Brent up towards US$40/bbl by the end of 2020. That may seem a remote possibility given today’s difficult realities, so it’s dependent on many things coming back into place.
Many producers today – and their financiers – would give their right arm for $40/bbl, according to Wood Mackenzie.
“Yet it’s still a very modest price. Few producers, IOCs or NOCs, make any money at $40/bbl, and there would be little or no new investment in non-OPEC supply. Covid-19 accelerated OPEC’s strategy to an unforeseen extreme. Once the virus retreats, the goal to win back market share can carry on, most likely at prices significantly higher than today.”
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