Global oil demand is set to plunge by more than 10 percent from the typical 100-million-bpd consumption, as the raging coronavirus pandemic forces countries into lockdown, according to the world's biggest independent oil trader, Vitol.
"Demand destruction this year depends on how many countries follow an Italian-style lockdown. The drop in Italian consumption has been dramatic. If you extrapolate it to the rest of Europe, and particularly the U.S., then you can get as bearish as you like," Giovanni Serio, head of research at Vitol, told Reuters on Friday.
According to the executive at the largest oil trader in the world, a 10-percent drop in U.S. demand would mean a 2 million bpd loss in consumption. Currently, an Italy-style lockdown in the United States is not Vitol's base case, but if Covid-19 infections spiral out of control, there could be drastic measures coming that would destroy a lot of oil demand.
California, for example, is already under lockdown, after ordering on Thursday its 40 million residents to stay at home unless they have an essential reason to go out.
In Europe, lockdowns in Italy, Spain, and France are crushing oil demand, German traffic is down 40 percent, and if the UK takes more measures to curb domestic travel, around 40 percent of Europe's 7-million-bpd demand is at risk, Vitol's Serio told Reuters.
One a positive demand note, activity in China is resuming and Beijing is a major beneficiary of the crumbling oil prices, according to Serio.
While China recovers from a demand slump, the worst for the rest of the world has yet to come, and analysts are already expecting zero or negative demand growth this year.
It's not certain that a Chinese buying spree of cheap crude oil could sustain the heavily depressed market for long either, because the world is running out of storage, which could send oil prices crashing into the teens and even to $10 a barrel.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More