Growth in oil demand will almost vanish this year as coronavirus ravages the global economy, OPEC forecast in its monthly market report on Wednesday.
The oil exporters’ club revised downwards its forecast for demand growth this year by 94 percent from last month’s report, from 990,000 barrels per day to an anemic 60,000 bpd.
“The impact of the COVID-19 outbreak in China and its downward impact on transportation and industrial fuels in China was the major cause of this revision… Considering the latest developments, downward risks currently outweigh any positive indicators and suggest further likely downward revisions in oil demand growth, should the current status persist,” OPEC said in its March Monthly Oil Market Report.
The coronavirus, officially known as COVID-19, has heightened fears of a global recession. Stock markets experienced some of their worst performances since the 2008 financial crisis this month. Markets were hit again this week following the collapse of the OPEC+ supply cut agreement, prompting fears of an oil market price war.
Total global oil demand is now forecast at 99.73 million bpd in 2020, OPEC said, with higher consumption expected in the second half of the year.
The price of oil dropped dramatically on Monday when talks broke down between OEPC members and Russia on securing a further output cut of 1.5 million barrels per day. Futures prices of Brent crude fell over 25 percent in Monday morning trading, while North America’s WTI crude dropped to around $29 per barrel in the worst day of trading for both futures contracts since 1991.
For oil exporting countries, OPEC noted the dramatic fall in prices would be a significant burden.
“The recent decline in oil price could not have happened at a worse time, as the COVID-19 outbreak has wiped out global oil demand growth for 2020 and caused a strong negative global economic impact, which is expected to continue and worsen if the virus is not controlled,” the report said.
“At the same time, several oil producing countries are now faced with lower oil price levels, which will affect government revenue of these countries,” it added.
Russia is likely to have some particularly adverse effects from the decline in oil prices. Last Friday, the Russian equity market lost almost 6 percent of its value, the report noted, and the ruble depreciated rapidly, a situation that may continue.
“The ruble’s current situation is quite similar to the 2014 and 2016 oil-driven declines in Russian equity markets. At that time, the ruble depreciated by 3 percent, for every 10 percent decrease in oil prices,” the report said.