Opec further cuts oil demand outlook due to virus

Opec on Thursday again cut its forecast for 2020 global oil demand due to the “historic shock” delivered by the coronavirus outbreak, and said the reduction may not be the last.

The Organization of the Petroleum Exporting Countries now expects global demand to contract by 6.9 million barrels per day, or 6.9%, in 2020, it said in a monthly report. Last month, Opec expected a small increase in demand of 60,000 bpd.

“The oil market is currently undergoing historic shock that is abrupt, extreme and at global scale,” Opec said in the report.

“Downward risks remain significant, suggesting the possibility of further adjustments, especially in the second quarter,” Opec said of the demand forecast.

Oil has collapsed in 2020 due to the slide in demand, falling to an 18-year low of $21.65 a barrel on March 30. To try to shore up the market, Opec, Russia and other producing nations have agreed to a record supply-cut pact. Opec expects the drop in demand this month to be the largest, seeing a contraction of 20 million bpd.

Even so, Opec expects a smaller near-term impact on demand than the International Energy Agency, which on Wednesday forecast a 29 million bpd dive in April oil demand to levels not seen in 25 years.

Meanwhile, oil prices rose on Thursday after sharp losses in the previous session, with investors hoping that a build-up in US inventories may mean producers have little option but to cut output as the coronavirus pandemic ravages demand.

With official data showing US inventories surging the most on record, US West Texas Intermediate (WTI) fell on Wednesday to its lowest since February 2002, while Brent fell by more than 6%.

Brent crude was up 51 cents, or 1.8%, at $28.20 a barrel by 1341 GMT.

WTI was up 37 cents, or 1.9%, at $20.24. Both contracts are headed for a weekly fall of around 10%.

“Oil prices must remain depressed to force shut-ins among non-cartelised producers,” said Norbert Ruecker, head of economics at Swiss bank Julius Baer, referring to producers such as the United States, where a lot of production is unprofitable at current prices.

“We stick to our Neutral view and see prices continuing to swing wildly around current levels in the very near term,” he said.

Energy Information Administration data showed large US refined fuels stock builds despite refiners operating at 69% of capacity nationwide, the lowest since September 2008.

The stockpile figures followed a report from the International Energy Agency (IEA) that forecast oil demand would fall by 29 million barrels per day (bpd) in April to the lowest in 25 years, and to just below 30% of pre-coronavirus global demand levels.

April’s projected demand loss is far more than the 9.7 million bpd output cuts agreed by the Organization of Petroleum Exporting Countries and allied producers including Russia for the coming two months.

Hoped-for cuts of another 10 million bpd from other countries, including the United States, could lower production by 20 million bpd, although some analysts have questioned that number.

“The massive storage build, as counterintuitive as it sounds, did provide some price support as the build foreshadows that more wellhead closures are just around the corner, which effectively trims US supply,” said Stephen Innes, chief global markets strategist at AxiCorp.

Some countries have also committed to increasing purchases of oil for their strategic stockpiles, but there are limits to how much oil can be bought and the extent of global coordination.

Speaking of US strategic reserve buying, Commerzbank analysts said that “this would accommodate 23 million barrels, which would normally constitute a massive additional reserve but these days would only just be enough to cope with one weekly increase in stocks.”

Separately, Anglo-Dutch oil giant Royal Dutch Shell pledged on Thursday to become carbon neutral by 2050, matching a commitment by rival BP as climate change looms large over the energy sector.

“Society’s expectations have shifted quickly in the debate around climate change,” Chief Executive Ben van Beurden said in a statement.

“Shell now needs to go further with our own ambitions, which is why we aim to be a net-zero emissions energy business by 2050 or sooner. Society, and our customers, expect nothing less.”

The company said it planned to have net zero emissions from the manufacture of all its products by 2050 “at the latest”.

Agencies