LONDON (ICIS)--The contraction in global crude demand is likely to be deeper than expected in 2020 due to sharp economic declines in parts of the world, while non-OPEC supply growth is likely to be higher than forecast, cartel OPEC said on Wednesday.
The organisation expects global crude demand to decline by 9.1m bbl/day this year, 100,000 bbl/day more than forecast last month, and has revised up non-OPEC supply expectations by 235,000 bbl/day month on month on the back of a better than expected recovery so far in the second half of 2020.
Non-OPEC supply is still expected to decline by 3.03m bbl/day overall this year, OPEC added.
The above-forecast demand for non-OPEC crude was driven by western Europe, while the declines in overall demand are a result of a deeper than expected drops in non-OECD economic growth in the second quarter of the year.
The cartel also cut demand expectations for its own crude, which it revised down by 400,000 bbl/day month on month to 23.4m bbl/day, 5.9m bbl/day lower than in 2019. Consumption in 2021 is expected to rebound by the same amount that it fell in 2020, meaning that current expectations are for OPEC crude buying to return to 2019 levels next year.
Brent crude pricing fell 70% from the start of the year to April before partially bouncing back, but the sector recovery was arrested once more by steep increases in inventory levels in May despite refinery intake cuts and scheduled shutdowns.
Easing lockdown measures across much of the world that month helped to buoy demand, but the spectre of a second wave of coronavirus infections and higher inventories are likely to continue to weigh on crude and refined product pricing in the second half of the year, although petrochemicals is likely to be a bright spot, according to the group.
“Product inventories may remain elevated due to weak road and air transport fuel demand, while gasoil, fuel oil and naphtha prices are expected to continue to receive some support from sectors less affected by the pandemic such as the home heating and petrochemical sectors,” OPEC said in its monthly crude market report.
OPEC crude output increased by almost 1m bbl/day month on month in July, driven in large part by an 866,000 bbl/day uptick in Saudi output during the period, OPEC added.
Thumbnail photo: An oil rig in Midland, US. Source: Larry W Smith/EPA-EFE/Shutterstock