LONDON: Persistent damage to the global economy from the coronavirus pandemic will hollow out demand for oil more than previously thought, major industry figures said on Monday.
The Organization of the Petroleum Exporting Countries (Opec), energy giant BP and commodities trading giant Vitol all made grim forecasts as rising rates of Covid-19 infections sap hopes for quick recovery.
Opec said in its monthly report that world oil demand would fall by 9.46 million barrels per day (bpd) this year, a decline sharper by 400,000 bpd than predicted in August.
The producer club bumped up its forecast slightly for developed countries, but cut its outlook for Asian countries beyond China “on the back of a slowdown in economic activity due to the rising Covid-19 infection cases”.
BP, in its annual energy outlook projected that in its most conservative scenario, the pandemic would slash oil demand by about 3 million bpd by 2025 and 2 million bpd by 2050.
In two more aggressive scenarios modelling two more rapid global pivots away from fossil fuels, the demand erosion would be far deeper.
Vitol chief executive Russell Hardy sounded a more positive note, telling a global petroleum conference that after oil storage peaks at the nadir of the pandemic, the market was “slowly chewing through that excess inventory”.
But the trading house’s global head of research Giovanni Serio said that a dent in demand caused by a continuing rise in cases or a second wave presents “the most likely shock that the oil market needs to be considering in the next 12 to 24 months”.
The International Energy Agency is set to update its projections for global oil demand in its monthly report due on Tuesday, after an IEA official said this month that the market appeared to be stuck between a stalled recovery and the absence of any major new lockdowns.
Meanwhile, oil prices slipped slightly on Monday amid concerns about a stalled global economic recovery and with Libya poised to resume production, and failed to get support from an impending storm which has disrupted US oil output.
Brent crude was down 35 cents, or 0.9%, at US$39.48 a barrel while US West Texas Intermediate (WTI) crude futures were down 26 cents, or 0.3%, at US$37.07 a barrel by 1522 GMT.
Both contracts ended last week lower, falling for a second week in a row.
“The storm is taking production offline in the Gulf of Mexico, and the market doesn’t care – that shows just how bad the situation is,” said Bob Yawger, director of energy futures for Mizuho in New York.
Tropical Storm Sally gained in strength in the Gulf of Mexico, west of Florida on Sunday and was poised to become a category 2 hurricane. The storm is disrupting oil production for the second time in less than a month after Hurricane Laura swept through the region.
Typically oil prices rise when production is shut down, but with the coronavirus pandemic getting worse, demand concerns are to the fore, while global supplies continue to rise.
The path towards global fuel demand recovery is likely to be rocky, several senior industry executives said.
“(Coronavirus) infection rates are on the rise again, there are localized lockdowns introduced in a growing number of countries hindering regional economic growth and the number of unemployed is failing to fall significantly,” oil broker PVM’s Tamas Varga said. “This leads to dismal oil demand growth.”
Opec and its allies, a grouping known as Opec+, meets on Thursday to discuss compliance with deep cuts in production, although analysts do not expect further reductions to be made. – Reuters