"Demand Crash" .. Analysts Rush To Cut Oil Forecasts

Demand crash

At the beginning of the year, the forecast was for a slight increase or stability in demand. But in a few months or even weeks, the most predicted price declines seem to be out of date.
“The demand crash this year is dependent on the number of countries that will emulate the Italian isolation model,” said Giovanni Serio, head of research at Vitol, the world’s largest oil trading company.
“If you apply this to the rest of Europe and even to the United States in particular, you can go into expecting prices to fall as far as possible.”

And based on widespread isolation operations in Europe, and even more restrictive US measures, Sirio expects demand to drop by more than ten million barrels per day, equivalent to ten percent of global daily consumption of crude of about 100 million barrels.

IHS Market and Standard Chartered Bank expected a significant decline in demand, which may reach ten million barrels per day in April.

But many analysts are reluctant to come up with expectations for daily demand exceeding a few weeks due to the uncertainty surrounding the period it will take to contain the virus and the full extent of its economic impact in light of the changing policies of governments day after day.

The authorities in the United States, the world’s largest economy, are stepping up measures to stop the spread of the virus. On Thursday, California reported its 40 million residents. The United States may later impose restrictions on cross-border travel with Mexico, which will further reduce fuel demand.

“This picture of oil demand is the bleakest for a long time, and it is paralleled by a collapse in fuel, gasoline, ship fuel, petrochemical and oil used to generate electricity,” said Louise Dickinson, an analyst at Restad Energy.

But even the expectations that came out less than two weeks ago now seem as if the age has eaten and drunk.

The US Energy Information Administration said on March 11 it expects a slight increase in demand of 370,000 BPD in 2020, while the International Energy Agency on March 9 indicated a slight contraction of 90,000 BPD.
In a report issued on March 17, Standard Chartered said it expected the average demand in 2020 to drop by 3.39 million barrels per day, which would be a new record exceeding the drop recorded in 1980 of 2.71 million barrels per day in terms of the number of barrels, not the percentage of total demand.
“Economic growth and demand for oil will weaken them further before reaching the recovery stage, which will only come with the lifting of social separation measures,” said Amrita Sen, chief oil analyst at Energy Aspects.
Torrent of supplies

Usually, falling oil prices push demand to return to the increase. But in light of the industrial closures, appetite is unlikely to stimulate even with Brent benchmarks losing half of their value in two weeks to trade below $ 30 a barrel.
Sen said that Brent may fall to the level of ten dollars, which is an unheard of price in 20 years, due to falling demand and a record rise in supplies from Saudi Arabia, which has been chasing the market share since the collapse of an agreement between OPEC and Russia to reduce supplies this month.
If Jefferson keeps Saudi Arabia at “that pace, the only minimum price of oil in the short term is zero,” said Jason Gammel of Jeffreys.

The agreement between the Organization of Petroleum Exporting Countries, Russia, and other countries collapsed, within the framework of what is known as the OPEC + group, due to differences on the best way to deal with the Coronavirus, as Saudi Arabia and OPEC were seeking to deepen production restrictions, while Russia opposed it.

But promises of additional crude from Saudi Arabia, which it says will pump more than two million barrels per day to the market, and from other producers still seem modest when compared to the size of the decline in demand

The market must be aware that the severe wave of demand loss caused by the Coronavirus will be about four or five times the flow of oil from OPEC + in the second quarter, probably,” said Bjnar Tonnhaugen, director of oil market affairs at Restad Energy.

Goldman Sachs, which on March 18 forecasted global demand to drop by 1.1 million BPD in 2020, cut its forecast for Brent in the second quarter of the year to $ 20. Demand crash

Bank of America Global Research expected it to fall below $ 20.

“The current prices are going to make very expensive oil producers very painful, and some of them will go bankrupt,” said Tamas Varga, oil analyst at PVM Oil Brokerage in London. Demand crash

“If this situation continues in light of the economic recession, it will indicate the largest surplus in global oil supplies at all,” added Jim Burkard, IHS Vice President and Director of Oil Market Affairs.

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