Due to the coronavirus shock to the global economy, the world’s oil demand is expected to drop by 9.1 million barrels per day (bpd) in 2020 – a larger demand loss than the cartel had estimated just a month ago.
In its closely-watched Monthly Oil Market Report (MOMR) published on Wednesday, OPEC now forecasts that the global economy will shrink by 4.0 percent this year, more than the 3.7-percent economic drop expected in the July forecast, due to the additional negative impact of the pandemic.
Due to lower economic activity levels in some major developing countries, this year’s global oil demand is now forecast to reach 90.6 million bpd—a drop of 9.1 million bpd compared to 2019. The expected decline in demand is around 100,000 bpd larger than OPEC had forecast last month.
In 2021, global oil demand is set to grow by 7.0 million bpd, with the expected rise unchanged from last month’s projection.
“The forecast assumes that COVID-19 will largely be contained globally, with no further major disruptions to the global economy,” OPEC noted in its report.
The cartel noted, however, that for 2021 “Large uncertainties prevail, possibly resulting in a negative impact on petroleum consumption going forward. During exceptional times the normal relationship between disposable income and oil demand does not hold up.”
As of June, commercial oil stocks in OECD countries were still rising, according to OPEC estimates. At 3.240 billion barrels, they were 301.5 million barrels higher than the same time a year ago, and 291.2 million barrels above the latest five-year average.
“Looking ahead, crude and product price developments in 2H20 will continue to be impacted by concerns over a second wave of infections and higher global stocks. Product inventories may remain elevated due to weak road and air transport fuel demand, while gasoil, fuel oil and naphtha prices are expected to continue to receive some support from sectors less affected by the pandemic such as the home heating and petrochemical sectors,” OPEC said.
As far as OPEC’s crude oil production in July in concerned, secondary sources data showed that OPEC’s output rose by 980,000 bpd month over month to average 23.17 million bpd—close to the estimates in the monthly Reuters survey, after Saudi Arabia, Kuwait, and the UAE ended their voluntary one-month over-compliance of a collective 1 million bpd. Of note in the July production is OPEC’s secondary sources estimate that oil production in Iraq – the biggest laggard in compliance which has promised to cut much more to offset poor compliance – saw its production rise by 39,000 bpd to average 3.752 million bpd.
By Tsvetana Paraskova for Oilprice.com
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Contrary to OPEC’s projection that this year’s global oil demand is now forecast to reach 90.6 million barrels a day (mbd), a drop of 9.1 mbd compared to 2019, my calculations show that global oil demand this year will hit 96 mbd, just 5 mbd less than 2019 level of 101.0 mbd. My projection is underpinned by two major bullish factors.
The first is China’s bounce back and the fact that Asian oil demand which accounts for 40 % of global demand is virtually back to 2019 levels. Moreover, during the first half of the year China’s crude oil exports broke all previous records and were 10% higher than the first half of 2019 despite the destructive COVID-19 pandemic.
The second bullish influence is the steep decline in US oil production by an estimated 6.3 mbd this year so far as a result of the pandemic. As a result, US oil production will be struggling this year and the following years to even reach 6-7 mbd.
And while OPEC’s monthly oil market report forecasts that the global economy will shrink by 4.0% this year, this is quite promising given the destructive impact of the pandemic on the global economy and in view of a 32.9% decline in the US GDP in the second quarter of this year. China’s GDP was reported to have shrunk by an estimated 6% in the first half of this year but is now projected to recover to 2019 levels by the end of the year.
Based on the above, oil prices are projected to hit $45-$50 a barrel in the second half of 2020 and hit $60 in early 2021. Furthermore, global oil demand is also projected to recover to 2019 level sometime in 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London