COVID-19 Spread Causes Demand Destruction
March 6, 2020
The news for today is pretty much the same two things that the market has been watching for a while now; coronavirus and OPEC+. The market is down hard again today as it seems Russia is still not on board with the OPEC cuts. This news has seen energy prices lower again with crude oil putting in a new low and RBOB testing it recent low and ULSD bring up the rear with a little more downside before it can test its recent low.
The virus news continues to grab headlines and as the virus spreads demand destruction fears grow.
Rystad Energy forecast that the coronavirus outbreak will cut growth in global oil demand by more than 50% this year compared with earlier forecast. It estimates global oil demand will increase by 500,000 bpd in 2020, down from a February forecast of 820,000 bpd and a December forecast of 1.1 million bpd. It also stated that OPEC’s agreements to cut output by an additional 1.5 million bpd in the second quarter is unlikely to result in cuts in output sufficient enough to balance the market given that global oil stocks are increasing by the day.
Goldman Sachs also came out and said much the same as they said they do not expect OPEC’s announcement to cut production by 1.5 million bpd(which is now in jeopardy) to prevent a global oil market surplus in the second quarter. It said its April Brent oil spot forecast remain at $45 per barrel. It said that ultimately a rebound in demand, not supply cuts, will be the necessary catalyst for a sustainable rebound in prices.