The oil market is heading for the largest ever crude glut in the first half of 2020, which could be two to nearly four times bigger than the biggest surplus recorded so far, IHS Markit says, as quoted by Bloomberg.
The glut in H1 2020 could reach between 800 million barrels and a staggering 1.3 billion barrels, more than two and up to nearly four times larger than the previous biggest glut of 360 million barrels in late 2015-early 2016, according to IHS Markit.
The largest-ever glut is coming as oil demand is slumping due to the coronavirus pandemic and former allies Saudi Arabia and Russia promising to flood the market with oil as they are in an all-out price war for market share.
“The last time that there was a global surplus of this magnitude was never,” Jim Burkhard, vice president and head of oil markets at IHS Markit, said, as carried by Bloomberg.
“Prior to this the largest six-month global surplus this century was 360 million barrels. What is coming will be twice that or more.” Related: Big Oil Is Literally Burning Cash In The Permian
What is coming could be a glut on a monthly basis of between 4 million bpd and 10 million bpd between February and May, according to IHS Markit.
Oil demand in the next two months could be down by as much as 10 million bpd, the analytics and consultancy firm said.
Crude oil demand during this quarter will likely register the largest decline on record, larger even than the slump that accompanied the 2008 financial crisis, IHS Markit forecast earlier this month.
Saudi Arabia prepares to unleash as much as an extra 2.6 million bpd on the market in April, the UAE is ready to add another 1 million bpd, and Russia promises to boost production as the oil price war is heating up.
By Tsvetana Paraskova for Oilprice.com
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Moreover, a price war waged by Saudi Arabia against Russia could exacerbate the glut further. This is very detrimental for oil prices.
Only an end to the outbreak could decelerate the glut.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London