BAKU, Azerbaijan, April 28
By Leman Zeynalova – Trend:
Wood Mackenzie expects a slow return to “normal” life in H2 2020 to help demand recover, though most likely staying below pre-crisis levels, Trend reports citing the company.
May is important for supply, with OPEC+ cuts taking effect and removing up to 7 million b/d from the market by the end of the month, said Ann-Louise Hittle of Wood Mackenzie’s Macro Oils team.
“A strong bounce in demand as the world emerges from recession will be needed to soak up the overhang of inventory, which threatens to reach record levels by summer. Nothing, however, can be taken for granted while coronavirus still poses a threat to economic – and social – activity. Storage globally will stay tight so long as oversupply persists. Genscape estimates Cushing‘s spare capacity of up to 15 million b/d will be full within weeks, and other landlocked hubs – the Caspian for one – are in a similar position. But in reality, producers everywhere are worried their crude won’t be able to find a home,” she said.
Third, the world is still awash with supply, which unlike demand is still close to pre-crisis levels, according to the analyst.
Hittle pointed out that low prices have killed off new investment but have not yet had much impact on production. “So far, we estimate barely one million b/d of onstream non-OPEC production has been shut in.”
“These are sizeable volumes but, given the scale of the market oversupply, insignificant. We estimate over 15 million b/d of production generates negative operating cash flow, now that prices have lurched lower. As storage fills up, more wells and fields will be shut-in during the coming weeks. Curtailed volumes will quickly mount up.”
She noted that oil demand, which we think may be close to bottoming out.
“Decline has been sharp and deep as Covid-19 takes its toll on global economic activity. Much of the world is currently in lockdown, with more than 65 percent of the world's population under travel restrictions. Global air travel and car use have nosedived in many countries. The big hit has been on jet fuel demand (down 50 percent year-on-year) and gasoline (down 25 percent). Diesel and fuel oil – used to transport goods by truck, ship and rail – have held relatively steady.”
The net effect will be April’s demand falling by an average of 15 million to 18 million b/d year on year, based on the early April forecast from our Macro Oils Service.
“It’s a big number but may be bigger still on certain days or weeks in April and May. Some estimates have suggested declines of 20 million b/d or more,” said the analyst.
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