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OPEC expects demand for its crude will fall to the lowest in three decades as the coronavirus outbreak freezes the global economy, underscoring the urgency of its promised production cuts.
Just under 20 million barrels a day will be needed on average from the Organization of Petroleum Exporting Countries in the second quarter, according to a monthly report from the group. It hasn’t pumped this little crude since early 1989.
OPEC and its allies agreed massive production cuts amounting to 10% of global supplies over the weekend, as governments extend lockdowns to contain the pandemic, emptying out roads, drastically reducing flights, and bringing many economic activities to a halt.
The report released Thursday from the cartel’s secretariat in Vienna illustrates why they’ll need to deliver the pledged reductions in full.
Even if OPEC members fully implement their share of the agreed cutbacks — a fragile assumption, given that many tend to cheat — they’d still be producing more than the market requires in the second quarter.
With perfect compliance, the 13 nations would be pumping about 23.4 million barrels a day, or roughly 3.7 million more than the “call on OPEC.”
Things could be even tougher for the organization than it’s forecasting.
While the group slashed forecasts for global oil demand this year, their estimates are still considerably more optimistic than those of the International Energy Agency, the institution that advises consuming nations.
OPEC sees world oil demand contracting by 6.8 million barrels a day in 2020, while the Paris-based IEA on Wednesday projected a slump of just over 9 million barrels a day.
