‘Unprecedented’ Hit To Oil Demand
The COVID-19 Pandemic is set to cause an ‘unprecedented’ drop in the volume of oil the world consumes this year, experts say.
That is, of course, comes side-by-side with a huge increase in the supply of energy. No wonder prices for crude oil are falling. A barrel of light sweet crude recently fetched a mere $29 a barrel versus $63 in early January, according to Bloomberg data.
Geopolitical consulting firm Eurasia Group sums up the matter of the falling demand in a recent report:
• With international aviation virtually at a halt, land transportation (especially private vehicle usage) also stalling, and even shipping experiencing a decline amid factory closures and the shutdown of the cruise sector, oil consumption heading into the second quarter could endure the biggest contraction on record during what will probably be a global recession.
Part of the problem is the lack of air travel.
“It would be the first time since the rise of modern aviation after World War II that there is little to no global private travel,” the report states.
Unprecedented Fall In Demand
Eurasia Group sees oil demand down by an unprecedented 10 million barrels a day (BPD) over the course of the year. The projected volume for the year was to have been around 100 million BPD. Now it will be 90 million.
However, some periods will see even lower demand.
“The sharpest contraction will likely occur in the second quarter, which could see consumption tank to 75 million BPD,” the report states.
In other words, the period from April to June could see a drop of 25% in demand compared to what was expected.
That falling demand will coincide with a promise by Saudi Arabia, the second-largest producer of oil, to ramp up production by around 20% over the next few months. That alone could add more than two million barrels a day to global supply.
The two weekends ago the members of OPEC (Organization of the Petroleum Exporting Countries) plus Russia, failed to get an output agreement. That failure sent the price of crude crashing at the beginning of last week. But it has continued falling.
And if the Eurasia Group report is anything to go by then we could see further drops as demand plunges in the second quarter — just weeks from now.