Oil Demand Faces Bigger Coronavirus Shock Than Previously Thought -- Update
By David Hodari
The coronavirus pandemic will have an even bigger impact on the
global economy and its demand for oil than previously expected, the
Organization of the Petroleum Exporting Countries said
In its monthly report, OPEC deepened its forecast of the extent
to which the pandemic will reduce global oil demand this year,
extending its estimate to 9.1 million barrels a day -- a drop of
more than 9% from last year's demand figure.
At the same time, the cartel sharpened its forecast for the
expected negative effect of the pandemic on the global economy and
now expects a 4% contraction in activity from a forecast of
While the global economy will start to recover in the second
half of 2020, "the latest surge of infections in the U.S. will need
to be closely monitored, as a continuation of this trend may lead
to an erosion in rebounding consumer confidence and spending
behavior," OPEC said in its report.
Rising coronavirus cases in India, Brazil and some eurozone
economies, such as Spain, will also need to be watched closely, the
Vienna-based organization said.
OPEC's latest figures add further confusion to an oil sector
whose recovery has stalled in recent months. Dropping U.S.
inventories and a patchy recovery in economic activity have clashed
with rising coronavirus infection rates and fresh regional
lockdowns to give oil investors mixed messages.
Consequently, oil prices have traded within a narrow price range
since the middle of June, although they rose Wednesday. Brent crude
oil, the global benchmark, was up 1.4% at $45.12 a barrel and WTI
futures -- the U.S. benchmark -- were up 1.7% at $42.30 a
The Energy Information Administration's increase to its forecast
for 2020 U.S. oil demand in its Short Term Energy Outlook, and
better-than-expected inventory data from the American Petroleum
Institute, were behind Wednesday's price rise, according to Helge
André Martinsen, senior oil market analyst at DNB Markets.
OPEC expects 2020 oil demand to be worse than previously feared
-- it left its forecast for a record-breaking rebound in 2021
unchanged. The organization also expects supply to tighten by less
than it had expected. OPEC softened the amount by which it expects
non-OPEC production to fall, reducing it by 235,000 barrels a day
to a fall of 3.03 million barrels a day.
In addition, OPEC member states elected to soften their historic
production curbs starting Aug. 1. Those countries, as well as
non-OPEC allies, will now hold back 7.7 million barrels a day from
OPEC observers will be watching to see whether countries that
had previously failed to fully comply with their cut quotas will
follow through on plans to compensate with deeper cuts in August
and the months ahead. Nigeria's crude output dropped 38,000 barrels
a day in July, according to official OPEC data, although secondary
data the report cites shows a drop of only 9,000 barrels a day.
Saudi, Emirati, and Kuwaiti production rose after the three Gulf
countries relaxed deeper voluntary cuts.
Meanwhile, global refinery margins ticked higher in July, thanks
to an increase in transport during the peak summer season, OPEC
While Asian refining margins returned to positive territory,
stronger refinery runs has done little to erode stubbornly high
inventory levels, meaning refining margins "remain at unfavorably
low levels," the report said.
Write to David Hodari at David.Hodari@dowjones.com
(END) Dow Jones Newswires
August 12, 2020 10:31 ET (14:31 GMT)
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