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COVID-19 to have very strong, but short-term impact on oil market

Oil&Gas Materials 15 July 2020 14:49
COVID-19 to have very strong, but short-term impact on oil market

BAKU, Azerbaijan, July 15

By Leman Zeynalova – Trend:

The Covid-19 pandemic will have a very strong impact on the oil market but a short-term one,

Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.

“World oil demand will probably nearly reach in 2021 its 2019 level (about 100 million b/d). It means that the Covid-19 pandemic will have a very strong impact on the oil market but a short-term one. But one of the main assumptions behind this scenario is the absence of lockdowns at a worldwide level in the second half of 2020 and in 2021. This does not mean that there will not be local lockdowns as seen recently in China, Australia or Spain for instance,” said the expert.

He noted that among the major trends on the oil market presently, one of the most significant is the increase of world demand.

“Oil demand fell in the first half of 2020, as compared with the corresponding period of 2019, but, since April, there is some improvement. According to the US Energy Information Administration (EIA) world consumption of liquid fuels rose by 10 million barrels per day between April and June. This increase will not prevent world oil demand from falling in 2020 (probably by 8-10 percent, annual average) but the most critical month in 2020 for the oil sector was April. World demand will go on rising during the second half of 2020 if there is not a new wave of national lockdowns,” Perrin explained.

Another major trend is the fall of world oil production since the OPEC+ agreement in April. 20 OPEC and non-OPEC countries (including Azerbaijan) began to cut their output at the beginning of May and some non-OPEC+ states (Brazil, Canada, Norway) decided to follow this example, said the analyst.

He pointed out that the US production is also falling without any political decisions but because of low oil prices. According to the EIA global liquids supply fell by 12 million b/d between April and June.

“The third major trend is the rise of oil prices. The price of North Sea Brent was $18 per barrel in April (average for the month) and it is now about $43/b (14 July). Oil prices could average $40-50/b in the second half of 2020,” noted the expert.

He recalled that after a huge increase over the past few months world oil stocks are now on the way of being reduced. “The increase was due to a massive overproduction (it was estimated by the EIA at 21 million b/d in April, about 20 percent of world oil demand in 2019) but, with the cuts in oil output and the increase of world oil demand since April, stocks are diminishing. It will take some time to reduce them to a more or less normal level but the trend is there.”

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Follow the author on Twitter: @Lyaman_Zeyn

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