Crude market hit by coronavirus demand shock – report
The impact of the coronavirus has sent shockwaves across the oil market, says Oxford Economics, an independent global advisory firm.
In its latest publication, Oxford has lowered its year-over-year global demand growth forecast in 2020 to 0.72 mb/d from 1.09 mb/d previously. However, it still foresees a “fairly balanced” market for the year.
On the supply side, the firm expects the current OPEC+ output cut agreement to be extended to year-end, Libyan and Venezuelan outlooks to deteriorate further, and US shale output to slow.
Demand should recover sharply in the second half of 2020 as the knock-on effects on fundamentals from the coronavirus outbreak are confined to the first half. For 2021, the global balance remains unchanged at 0.2 mb/d surplus.
Given the current state of the crude market, Oxford estimates Brent to average $62.2/b in 2020 and $66.7/b in 2021, but demand-side risks that can drag prices down to the low $50/b range remain elevated in the near-term.
At their meeting next month, OPEC+ producers need to weigh with extreme caution the likelihood of severe demand risks materializing if the coronavirus is not contained soon, Oxford cautioned.
If OPEC+ were to delay their response to the second half of 2020, this would require the group to nearly double the recommended cut of 0.6 mb/d to sustain prices in the low $60/b range for the rest of the year.