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As the coronavirus spreads fast outside China, dampening consumer and business sentiment, analysts continue cutting their forecasts of oil demand growth this year.
In one of the latest downward revisions, Rystad Energy slashed on Thursday its global oil demand growth projection to just 500,000 bpd for this year, down from an initial pre-outbreak estimate of 1.1 million bpd, which was cut by 25 percent in February.
“Our data now point to a much more pessimistic outcome, with growth likely to fall to merely 500,000 bpd, and this is assuming that the Covid-19 epidemic will largely be contained by the end of June, which in turn implies a further downside risk,” Rystad Energy said on Thursday.
Rystad’s revised oil demand growth forecast comes after IHS Markit warned that oil demand in Q1 would likely register the largest decline on record, larger even than the slump that accompanied the 2008 financial crisis.
Even if the OPEC+ coalition agrees on Friday to deepen the current cuts by 1.5 million bpd in Q2, this will not be enough to rebalance the market and prop up prices, according to Bjørnar Tonhaugen, Rystad Energy’s Senior Vice President, Head of Oil Markets.
The OPEC+ group is meeting on Friday in Vienna, where OPEC will be trying to persuade Russia to sign up to a massive 1.5 million bpd cut in Q2.
If Russia agrees to this proposal, Brent Crude prices could stay above $50 a barrel, as long as Libya’s 1 million bpd production remains shut in, Rystad says.
All three scenarios Rystad has modeled include the assumption that Libya’s production will return to normal in April.
If OPEC and its Russia-led non-OPEC partners reach a kind of a ‘low-level compromise’—agreeing to deepen the cuts by 600,000 bpd in Q2 and extending the current agreement— Brent Crude prices could fall to the low $40s in the second quarter.
In the least likely, as per Rystad, ‘no deal’ scenario, the lack of agreement tomorrow would result in a huge oversupply on the market and Brent could drop to $40.
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.