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Oil demand, price forecasts continue to be cut as US extends lockdown

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Oil demand, price forecasts continue to be cut as US extends lockdown

Highlights

Weak outlook depressing price forecasts

Demand to crater by 26 million b/d this week: Goldman

JBC sees 2020 demand down 7.4 million b/d on year

London — Predictions over collapsing global oil demand due to the spread of coronavirus are continuing to spiral, further depressing oil price forecasts, after the US extended its latest lockdown guidance.

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Brent crudes futures fell $2.35/b to a new 17-year low at $22.58/b Monday after US President Trump announced plans to extend social distancing in the world's biggest oil consumer until April 30.

Trump had previously said he hoped the restrictions could begin to be lifted by the Easter weekend, or April 10-13.

Most market-watchers expected the lockdowns to continue to roll on for much longer, however, further denting oil demand expectations this year.

This week, global oil demand will drop by 26 million b/d, or 25%, as social-distancing measures to contain the coronavirus now impact 92% of global GDP, Goldman Sachs said in a note Monday.

With billions of people worldwide under some form of lockdown, oil demand may fall as much as 20 million b/d at some stage this year, the International Energy Agency's Executive Director, Fatih Birol, had said last week. Last year global oil demand averaged about 100.5 million b/d, according to the IEA.

Research group JBC Energy said Friday it had "drastically" reduced its 2020 oil demand forecast, and expected a decline of over 7.4 million b/d.

The same day, S&P Global Platts Analytics said it expected oil demand to shrink by a record 16 million b/d in April and average 4.5 million b/d lower year-on-year in full-year 2020.

Oil price slide

"The worst is still ahead for oil prices...This will be the worst demand contraction ever recorded. Despite that, the outlook remains under negative watch," S&P Global Platts Analytics said.

It said it saw Brent crude averaging $12/b in May, but "prices could easily dip into the single digits, whatever it takes to get significant supply off the market and quickly".

Norwegian consultants Rystad Energy said Monday it expected to further cut its latest estimates of a 16 million b/d oil demand loss estimate for April.

"The oil market supply chains are broken due to the unbelievably large losses in oil demand, forcing all available alternatives of supply chain adjustments to take place during April and May," Rystad said in a note.

Goldman Sachs said it saw Brent crude staying near cash costs of $20/b with "temporary spikes below", adding "landlocked" benchmark crudes such as US WTI could be hit harder.

While Brent crudes in the North Sea are accessed by tankers, landlocked pipeline crudes from US, Russia and Canada are more vulnerable to regional backlogs, further depressing their price, analysts Jeff Currie and Damien Courvalin said in a note.