Crude oil demand revised down on lockdowns, stocks remain high despite Q3 easing – OPEC

Jonathan Lopez

11-Nov-2020

LONDON (ICIS)–The crude oil market is set to continue suffering the hit from a depressed aviation sector as well as fewer vehicle journeys in major economies as new lockdowns are rolled out to contain the spread of the pandemic, producing cartel OPEC said on Wednesday.

Saudi-led OPEC does not expect crude oil demand to recover pre-pandemic levels until 2022 at the earliest.

The historic demand fall of nearly 10m bbl/day for crude oil demand in 2020 has been compounded by fourth-quarter lockdowns in Europe’s major economies, dampening sentiment further and potentially causing a stop to the recovery initiated in the third quarter.

For 2020, the cartel forecasts global crude demand to average 90m bbl/day, a historic fall from the nearly 100m bbl/day of crude oil the world devoured in 2019; the new figure is 300,000 bbl/day lower than OPEC’s last estimate.

The revisions were not purely due to lockdowns currently in place in Germany, France, and the UK, as well as other mobility restrictions in Italy and Spain.

It was also caused after lower-than-expected growth was observed during the third quarter in the Americas’ countries which are part of the OECD – Canada, Chile, Colombia, Mexico, and the US. The pandemic has hit the Americas hard, with restrictions in place since March in some countries being only lifted now.

Of the 90m bb/day of crude oil demand expected for 2020, OPEC’s barrels are set to continue losing importance in the global supply picture; the cartel expects demand for its crude to stand at 22.1m bbl/day in 2020, down 200,000 bbl/day from its last forecast.

At 29.3m bbl/day during 2019, OPEC’s output covered nearly a third of total global demand.

For 2021, OPEC expects even a larger fall now, with a revision down to its supply and demand balance forecast of 600,000 bbl/day, expecting to place in global markets 27.4m bbl/day, still sharply lower than 2019 total.

“Transportation and industrial fuel are expected to remain adversely affected throughout Q4 2020. As a result, world oil demand is now expected to contract by around 9.8m bbl/day, year on year, in 2020,” said OPEC.

“These downward revisions mainly take into account downward adjustments to the economic outlook in OECD economies due to Covid-19 containment measures, with the accompanying adverse impacts on transportation and industrial fuel demand through mid-2021.”

AWASH WITH OIL
Crude oil inventories remain at high levels, although OPEC said that, thanks to the agreement reached with other producing countries in April, they had started to come down.

The April agreement with Russia and other countries under the umbrella of the OPEC+ group managed to reverse growing inventories; in fact, OPEC said the agreement to cut output could have eased inventories by 250m bbl since June to October.

OPEC said during January-September oil-at-sea rose by 162m bbl, adding up to the surge in global inventories which have jumped by more than 1.0bn since the beginning of 2020.

“The oil futures curve flip into contango in March 2020 made it profitable for traders to purchase relatively cheap crude barrels to store at sea, in order to sell forward. In addition, the lack of demand for oil resulted in cargoes being stuck at destination ports, waiting for discharge orders,” said OPEC.

The efforts to cut supply and prop prices made by OPEC+, however, seem futile when global figures are taking into consideration, with the falls from June to October unable to greatly dent stocks.

“Despite these production reduction efforts [by OPEC+], global inventories have registered a sharp build, as OECD stocks saw a build of around 290m bbl, while non-OECD stocks are estimated to have built by about 540m bbl.”

OPEC said the “high conformity” levels among OPEC+ members had started easing stocks by as much 44m bbl in the OECD countries, from June to October, and by 55m bbl/day in non-OECD countries.

“Meanwhile, oil at sea, including floating storage, has also fallen, dropping by about 150m bbl,” concluded OPEC.

Earlier this week, crude oil prices gained traction after the Saudi energy minister said the OPEC+ output cuts could be extended beyond January.

However, the rally since Monday (9 November) afternoon has had to do more with Pfizer’s update on its Covid-19 vaccine; according to the US pharmaceutical major, a mass roll out could start as soon as December.

OPEC said it would gather its members on 30 November and 1 December “to further assess market developments and consider how best to continue relentless efforts” to balance the market and prop up crude prices.

Global supply and demand
2020 vs 2019, Q1-Q3 average
(Mb/d = million bbl/day. Source: OPEC)

OECD commercial crude inventories
(Mb = million bbl. Source: OPEC)

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?