'Horrifying' Oil Outlook Demands Action: Opec

As Opec and other major producers hold talks to reach a landmark global production cut, Opec secretary general Mohammed Barkindo said that the unprecedented challenges facing the oil industry demanded urgent action.

Storage capacity is reaching the limits as demand cannot keep up with supply and prices have fallen well below $25/barrel.

"Covid-19 is an unseen beast that seems to be impacting everything in its path," he said, noting that no sectors of the economy were unaffected by the crisis.

"For the oil market, it has completely up-ended market supply and demand fundamentals since we last met on March 6," he said. "Even in the first week of March the outlook looked relatively bleak, but in just over one month it has changed beyond all recognition. The supply and demand fundamentals are horrifying; the expected excess supply volumes on the market, particularly in the Q2 20, are beyond anything we have seen before."

"Our industry is haemorrhaging; no-one has been able to stem the bleeding. We are already seeing some productions shut-ins, companies filing for bankruptcy and tens of thousands of jobs are being lost," he continued.

Barkindo noted that less than a month ago, global GDP was expected to grow by 2.4% this year, but now is predicted to shrink by 1.1%. Meanwhile, 2020 oil demand had been forecast to grow by just below 0.1mn b/d, but is now slated to contract by 6.8mn b/d, and by 12mn b/d in the second quarter alone. No surprise, then, that oil prices have crashed.

"We are likely to see further breaches in logistical capacity, for ships, pipelines, terminals and processing units. And it is clear that available storage capacity is quickly filling up," he said.

Current global storage capacity is over 1bn barrels, Opec estimates, but with excess supply set to average 14.7mn b/d in the current quarter, available storage will run out in May if action is not taken. "There is a grizzly shadow hanging over all of us. We do not want this shadow to envelope us.  It will have a crushing and long-term impact on the entire industry," he said. 

"All the producers here, Opec, Opec+ and other producing nations that have taken it upon them to responsibly join the meeting today, need to recall the severe market imbalance 2014-2016," he continued.  "It was when oil producers lost trillions of dollars in foregone revenues, and globally more than $1 trillion was lost in terms of investment.

"It is imperative we take urgent action.  It is in all of our interests, and it is also in the interests of consumers. That is not to say that any medicine will be easy; obviously, it won’t.  But it is clear that it is needed. And it will benefit us all. The current challenges need "unparalleled flexibility and commitment," he said. 

"I call on oil producers here today, to look at the market outlook we present, and stand shoulder-to-shoulder to help this vital global industry survive," he concluded. "For the current quarter, around 15% of global oil consumption has evaporated and this huge market imbalance needs to be urgently addressed."