Oil Demand Faces Bigger Coronavirus Shock Than Previously Thought -- 3rd 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
The cartel estimates that world-wide oil demand this year will
amount to 90.6 million barrels a day, 9.1 million barrels less than
last year. The 9.1% decline is deeper than OPEC forecast in its
previous monthly report.
OPEC also said that it expects a 4% contraction in the global
economy, worse than its earlier estimate of 3.7%.
The Vienna-based organization expects economic recovery in all
major economies now that lockdowns have eased, but wrote that "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."
Rising coronavirus cases in India, Brazil and some eurozone
countries, such as Spain, also could derail economic growth and oil
demand, OPEC said.
The recovery's vulnerability has kept oil prices stuck in
neutral. Both Brent crude futures, the global benchmark, and West
Texas Intermediate, the main U.S. gauge, have traded in narrow
bands the past two months.
On Wednesday, Brent rose 2.1% to end at $45.43 a barrel. West
Texas Intermediate gained 2.5%, to $42.67.
That's a lot higher than in spring, when U.S. futures prices
plunged for the first time ever into negative territory on fears
that there would be nowhere left to store oil as Americans hunkered
down to slow the spread of the deadly disease. But $40 oil hasn't
been enough to encourage U.S. producers to ramp up output.
The U.S. Energy Information Administration said Wednesday that
domestic crude production last week fell to 10.7 million barrels a
day, down from a record of 13.1 million in mid-March when governors
began issuing stay-at-home orders.
Though jet-fuel consumption remained very weak, down about 45%
from a year earlier, demand for diesel and gasoline continued to
climb back and chip away at U.S. stockpiles, the EIA said.
Despite the risk of another round of lockdowns, OPEC left intact
its forecast for a record-breaking rebound in 2021.
Member nations elected to soften their historic production curbs
starting Aug. 1. OPEC and its market allies, such as Russia, will
now hold back 7.7 million barrels a day. Saudi, Emirati and Kuwaiti
production already have risen.
Questions remain as to whether countries, including Nigeria,
that failed to comply with earlier quotas will follow through on
pledges to compensate with deeper cuts this month and beyond.
Nigeria's crude output dropped by 38,000 barrels a day in July,
according to official OPEC data, although other data cited in the
report shows a decline of just 9,000 barrels a day.
Write to David Hodari at David.Hodari@dowjones.com
(END) Dow Jones Newswires
August 12, 2020 15:13 ET (19:13 GMT)
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