As a result of the Organization of the Petroleum Exporting Countries’ (OPEC) failure to agree on production restraint in early March, the implications of the COVID-19 pandemic have become far clearer. According to Wood Mackenzie, the situation sparked a worrying crisis in the oil market as prices fell and oil supply ramped up.
Wood Mac in its latest analysis said that the problem for the OPEC producers is the scale of the fall in oil demand, especially during April and the forecast for the second quarter of 2020. But no matter the size of the varying forecasts, the global energy consultancy group said they all point to a challenging market that puts pressure on storage space and prices.
Wood Mackenzie also said it has done a product-by-product, week-by-week forecast and assuming the containment shut-ins are in place most severely during April, then ease slowly in the following several months, it expects world oil demand to fall over 8 million barrels per day for the second quarter of 2020. It said also that April will see the sharpest drop. The decline for that month is expected to be over 15 million barrels of oil per day as coronavirus containment measures will likely be at their steepest.
As for the second half of 2020, Wood Mac forecasts that there will be a gradual easing of the extreme oversupply seen in the first half of this year as the fundamentals begin shifting towards demand stabilization.
It said, “Demand will still be down, year-on-year, but the decline will not be as steep as in the second quarter and supply will start to weaken. To show the extent of the trend, for 2021, Wood Mackenzie is forecasting total global supply, including OPEC, non-OPEC, and natural gas liquids, to show no growth for the year. Demand, while weak, is projected to rise in 2021 – a sharp reversal from 2020 when demand falls and supply rises.”
Wood Mac said that the crisis is extreme for the oil market but low oil prices have already had an effect on supply and the steep falls in demand will have a limited duration.