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Oil demand won’t get back to pre-crisis growth trend for some years

Oil&Gas Materials 3 July 2020 17:23 (UTC +04:00)
Oil demand won’t get back to pre-crisis growth trend for some years

BAKU, Azerbaijan, July 3

By Leman Zeynalova – Trend:

The global oil demand is not going to get back to the pre-crisis growth trend for some years, Trend reports with reference to Wood Mackenzie.

The company’s latest Macro Oils global oil demand forecast for 2021 is 3 million b/d below its pre-crisis forecasts.

As for oil refining, the company said there was over-capacity in refining before the crisis; lower demand just makes it worse. “Compounding that is the excess product (and crude) inventory built up during Q2 2020. Inventories won’t fall back to normal levels until well into 2021.”

Wood Mackenzie expects that margins should begin to recover as the oil market rebalances over the next 18 months but will stay at modest levels.

“We expect the global composite margin to average $1.40/bbl in 2020, then $2 to $3/bbl through 2025 – 20 percent down from our pre-crisis forecast. That’s little more than half the $4.40/bbl average of the last decade,” reads the report.

“The severity of the downturn has caught everyone out. Short term, liquidity is critical for survival – the high working capital needs of refining are a real challenge for smaller independents. Higher cost players are going to struggle. The industry already runs a tight ship and managing for margin is still the mantra. Investment is already being slashed, and more efficiencies will no doubt be eked out. Any opportunity to use slack in the market to bring forward planned maintenance will be seized,” said Wood Mackenzie.

Global utilisation rates dipped as low as 65 percent in Q2 and are set to average around 70 percent in 2020 – the lowest in living memory, according to the company.

“As demand recovers, refiners need to be operationally adept. This downturn is different to any experienced before – market conditions are fragile and vary from location to location while product demand is skewed. Getting utilisation rates back to profitable levels – the global average of just under 80 percent this last decade – will take time and a delicate touch. Over-exuberance risks flooding the market with product and undermining margins.”

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Follow the author on Twitter: @Lyaman_Zeyn

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