An Unprecedented Fall in Crude Demand
March 27th, 2020
With the unprecedented fall in demand due to the virus and over 3 billion people on lock down Saudi Arabia is finding it hard to find buyers to sell their extra crude oil into the market. Freight rates for tankers have increase in recent weeks due to many companies looking for places to store crude and that also has hurt the ability to sell crude oil. The Saudi price war with Russia appears to not be working out all that well as the price of the dollar related to Saudi Arabia’s currency and Russia currency is also not supportive of Saudi Arabia’s current path to flood the market and punish those not willing to cooperate. Saudi Arabia and Russia have both been very staunch is there stance to continue on this path and only time will tell how long this continues and the overall impact to the global market. Reports out today indicate that Russia is calling for more cooperation by all producers globally to support crude prices by limiting production. This is just a headline for now and there is no indication that any action will be taken but maybe it is a start. The response or comments from Saudi Arabia will be the big key. Many think their current response is a temper tantrum from the young arrogant Crown Price, Mohammad bin Salman (MBS).
The following comment is from a Reuters article: Global oil demand could drop as much as 20 million barrels per day or 20% of total demand as 3 billion people are currently in a lockdown because of the coronavirus outbreak, the head of the International Energy Agency said. Fatih Birol told a conference call that the IEA, which coordinates energy policies of industrialized nations, would give a clearer outlook and timeframe in two weeks’ time. The IEA sees a major decline in US shale output in light of the current oil price. However, US oil output will bounce back as soon as the oil prices recover. The head of the IEA also stated that one would expect Saudi Arabia to contribute to stability of the oil markets.
The Senate passed a $2 trillion stimulus plan helping struggling workers, industries, and small businesses hurt by the impact of the coronavirus. The House is expected to pass the legislation today Friday. The US Department of Energy cancelled a plan to buy domestic oil for the Strategic Petroleum Reserve (SPR) after funding was not included in the broader stimulus package.
Goldman Sachs expects oil demand to fall by 10.5 million bpd in March and possibly by as much as 18.7 million bpd in April. It said the scale of the demand decline will require a large amount of production to be shut-in, of potentially several million barrels per day. Goldman Sachs said Brent crude prices will likely remain near $20/barrel in the second quarter. It said US crude saturation will likely lead WTI prices to fall below $20/barrel.
Moody’s said lower oil prices will continue through 2020 before the market begins to rebalance as supplies decline. It said the timing of any recovery in demand and oil prices is highly uncertain. It expects oil prices to average $40-$45/barrel in 2020 before returning to $50-$55/barrel in 2021.
The US has officially overtaken China as the country with the most cases of coronavirus. The latest I have seen is that the US is now at 82,000 cases.