Crude Oil Weekly Market Report: April Witnessing The Worst Oil Demand Contraction

oil rig


World Economy

In its monthly oil market report, The Organization of the Petroleum Exporting Countries (OPEC) stated that “The world economy is forecast to face a severe recession in 2020, declining by 1.5%, following global economic growth of 2.9% in the previous year”. The US is forecast to contract by 4.1% and the Euro-zone by 6%in 2020

Those estimates were pretty optimistic, compared to the 3% contraction in world output forecasted by the IMF in 2020. 


World Oil Demand

world oil demand

For 2020, the OPEC world oil demand growth forecast is revised lower by 6.9 mb/d, to a historical drop of around 6.8 mb/d. The contraction in the 2Q of this year is expected to be around 12 mb/d, with April witnessing the worst contraction at about 20 mb/d.

The severity of the collapse is likely to result in sharper contraction in oil demand, particularly during 2Q20, extending into 3Q20 and 4Q20. In fact, the contraction is forecast to reach 12 mb/d in 2Q20, about 6 mb/d in 3Q20 and about 3.5 mb/d in 4Q20.

World oil demand decline in 2020 is estimated to be the sharpest in all oil market history. At 6,9% decline compared to previous year.

world oil demand

opec world oil demand


World Oil Supply:

The impact of COVID-19, ensuing global economic recession and oil demand shock, will also lead to supply disruptions. Benchmark oil prices plunge prompted companies to respond by cutting capital expenditure to the lowest in 13 years

Oil supply in 2020 is now forecast to show growth only in Norway, Brazil, Guyana and Australia.

The OPEC and NON OPEC countries agreed in their last meeting to cut oil production by about 10% in the coming months. Starting by a 9.7 mb/d between May and end of June, Followed by 7.7 mb/d cut from July till end of December 2020, and finally a production cut by 5.8 mb/d from January 2021 till April 2022. To reach a total oil production cut of 23% during the whole period.

Oil-market reaction to this deal has been muted, with the scale of the demand shock arising from the Covid-19 pandemic overwhelming even the level of these unparalleled cuts. The international energy agency (IEA) expects global oil demand to fall by 29mn b/d in April from a year earlier to 70.4mn b/d, a level last seen in 1995, as a result of the coronavirus pandemic. The decline in full-year consumption will amount to 9.3mn b/d, it said.

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