Outlook for Oil Grows Ever More Bearish
Oil prices slumped for the third session in a row on March 18, amid growing demand losses as the coronavirus (Covid-19) crisis escalates.
Month-ahead Brent is trading at $27.50/barrel as of press time, down 3.6% from the close of trading on March 17, while US benchmark West Texas Intermediate (WTI) dipped by around 9.5% since 07:00 GMT and was trading at around $24.30 at the same time.
Goldman Sachs slashed its forecast for US WTI to $20/barrel for the second quarter – its second cut in guidance in under two weeks, according to US media – citing "unprecedented" demand losses.
Oslo-based Rystad is projecting a 2.8% fall in the world's oil consumption this year to 97.1mn barrels/day, which would mark a bigger decline than was seen in 2009 in the aftermath of the global financial crisis. A week earlier the consultancy predicted a drop of only 600,000 b/d.
Demand will take the greatest hit in April, Rystad said, falling by 11mn b/d yr/yr, as containment measures against the virus intensify. Rystad predicts that demand for road fuels will fall by 2.2% in 2020, while consumption of jet fuels will slump 12% because of lockdowns being imposed and aircrafts being grounded.
Russia, Saudi Arabia and other Opec+ members are also expected to ramp up production next month after their agreed supply quotas come to an end. The alliance of producers was unable to agree on extended, deeper cuts to rebalance the market, prompting Saudi Arabia to launch a supply war against its rivals. Among the victims will be the highly-leveraged US shale oil producers, which can react quickly to price signals.
Rystad said in a separate statement that it predicted as much as 3mn b/d of extra oil to arrive on the market in April, with Opec+ countries accounting for 2mn b/d. The additional 1mn b/d would come from Libya if a ceasefire is agreed between the government and rebels.
"Any large political power sometimes needs to remind its adversaries and competitors of its might," Rystad analyst Bjornar Tonhaugen said. "Saudi Arabia seeks to teach the market a lesson."
Saudi Arabia is expected to boost output to 10.8-11.0mn b/d next month, up from 9.8mn b/d in February. Production will rise further to 11.2mn b/d in May. The kingdom may be able to meet its 12.3mn b/d target by releasing oil from storage. But it will be unable to increase production alone to more than 11.5mn b/d without additional drilling, Rystad said.
Russia has said it is able to increase output by 300,000 b/d in the next 90 days, but while Rystad said it believed the country could do so, it was assuming a more conservative increase of 200,000 b/d in its estimates.
The UAE will be able to expand supply by around 200,000 b/d to 3.2mn b/d in April, from 3.04mn b/d in February, on the back of higher yields at its onshore Murban field. It could increase flows even more by utilising its entire spare capacity, Rystad said.
An additional 110,000 b/d will come from Kuwait in April, raising its output to 2.8mn b/d, according to the consultancy, along with 250,000 b/d from Iraq, increasing its contribution to the market to almost 4.9mn b/d. The latter could be able to achieve a 480,000 b/d gain by June if it is able to find enough buyers to use all its spare capacity.