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The emergence of the new round of restrictions caused by COVID-19 in Europe, and signs of economic weakness in some other countries including the US, have prompted Wood Mackenzie’s analysts to revise down their forecasts for world oil consumption in the last quarter of 2020 and the first of 2021, Trend reports.
Demand is now expected to be about 94.3 million barrels a day in the current quarter, down about 6 percent from the final three months of 2020. In the first quarter of next year it is expected to be about 95 million b/d; up about 1.5 million b/d from the same period of 2020.
The most striking point about the new forecasts, however, is that expected oil consumption in China in the second half of this year has actually been revised up slightly. China’s economy has been hit by the pandemic, of course, but the country’s success in controlling Covid-19 means that its economy will be able to grow this year, a remarkable performance at a time when the world is suffering its sharpest downturn since the aftermath of World War 2. We project that China will use about 14.1 million barrels of oil per day this quarter, up 4.5% from the last quarter of 2019. “China is doing better than anybody else, because it has addressed the virus effectively,” said Ann-Louise Hittle, Wood Mackenzie’s head of Macro Oils.
As demand has been flagging, oil exports from Libya have been ramping up, following the ceasefire between warring factions. The result has been pressure on crude prices, with benchmark Brent dropping to close to $36 a barrel at the start of the month. Since then it has benefited from a healthy rebound, reaching about $40.50 barrel on Friday morning. But the balance of supply and demand suggests global inventories are likely to rise this quarter and next.
For the OPEC+ group of OPEC members and allies including Russia, market conditions have forced a rethink of the plan to relax production curbs at the start of next year. Abdelmadjid Attar, energy minister of Algeria, which currently holds OPEC’s rotating presidency, described the situation in world oil markets as “very dangerous”, according to the state news agency APS. He urged the OPEC+ group to extend the current level of production curbs, a reduction of 7.7 million b/d from pre-crisis levels, into next year. The current schedule is for those curbs to ease off to a 5.8 million b/d reduction in January, but it looks increasingly likely that that increase in output will be delayed. On Monday Alexander Novak, Russia’s energy minister, talked to leaders of the country’s oil companies about a possible extension of this year’s curbs into next year. And OPEC and Russia have even been thinking about the possibility of deeper production cuts early in 2021, Reuters reported.
In the run-up to the next OPEC+ meeting on 1 December, the group’s members are going to be under pressure to avoid adding to global oversupply in January. A 17 November meeting of the OPEC+ Joint Ministerial Monitoring Committee, co-chaired by Russia’s Novak and his Saudi Arabian counterpart Prince Abdul Aziz Bin Salman, will be important for sending a signal to the markets about their intentions.
