Demand destruction and continued inflation…
Europe, long considered Gazprom’s “bread…
Petrobras has started shutting down production at 62 offshore platforms in the shallow waters off its coast, Reuters reported, adding that the cuts will amount to 23,000 bpd.
Petrobras said earlier that as part of a global effort to support oil prices, it would cut some 200,000 bpd from its daily production, an earlier Reuters report said.
OPEC+ agreed last week to reduce its combined production by 9.7 million bpd. This was less than most traders expected and a lot less than the slump in demand, which could be as much as 30 million bpd. However, with cuts from non-OPEC+ partners such as Brazil, Norway, Canada, and the United States, the total reduction in supply could reach 20 million bpd.
The bad news is this won’t be enough. The International Energy Agency (IEA) said in its latest monthly Oil Market Report that the coronavirus outbreak has so far caused a record drop in oil demand, at 9.3 million bpd from 2019 levels. In April alone, demand fell by 29 million bpd. Over the second quarter, the IEA said, demand would recover somewhat, to 23 million bpd below 2019 levels, and then further down the road, it could recoup most of the losses, ending the year 2.7 million bpd below 2019 levels.
It is clear to everyone that the cuts are necessary, but it also seems clear that they will not be enough to offset the demand decline fully. What’s worse is that global oil storage is filling up, and it will continue filling up despite the cuts. This seems to be the only thing that could force additional production cuts from most, if not all, oil producers.
Brazil, too, may have to cut deeper. The country was on course to a new oil boom in its presalt zone offshore when the crisis hit and persistently low prices could be the death of this oil boom. Currently, the country is producing around 3 million bpd but had plans to increase this substantially. According to OPEC’s February MOMR, Brazil’s production was expected to grow by 310,000 bpd in 2020.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.