New Covid lockdowns to hit oil demand
Renewed lockdowns in Europe and rising Covid-19 infections in the US could slash oil demand by up to 2.5mn b/d from previous projections, although much of the impact may already be reflected in crude prices, top executives at global trading firms said.
A second wave of coronavirus infections will lead to further demand destruction, chartering company’s spokesman said at the FT Commodities Asia Summit today.
“We’re possibly talking another 1mn b/d in the US, probably 1.5mn b/d in Europe. It’s not looking good for the foreseeable future”
Trading firms have been projecting global demand at around 92mn b/d, but this could now slip to around 88mn-89mn b/d in the short term, they said.
Other companies seem to be “a little bit more optimistic” but still sees a 500,000 b/d demand loss across northwest Europe because of the latest lockdowns.
The demand will be averaging around 96mn b/d over the northern hemisphere winter period, about 6mn b/d lower than a year earlier. “The majority of that [demand loss] is aviation, but there’s a chunk of gasoline and diesel, especially post the recent lockdowns,” Firm spokesman said.
Supply tightness is supporting crude markets. Cuts by the Opec+ group and other producers including the US have removed around 6mn-7mn b/d from the market, which is more than covering the demand drop.
Markets are still drawing down the 1bn-1.2bn bl of stocks that were built up in the second quarter, at a pace of around 2mn b/d. “Trading companies must not lose sight of that fact — although we are in the middle of a crisis of confidence at the moment, so the market reaction is not at all surprising.”
Market participants may be looking for a rollover of Opec+ production levels. There is a need for further cuts but kicking the increase into the long grass would probably be welcomed by the market. The 2mn b/d increase that has been mooted for 1 January would be the difference between a continued stockdraw and a larger stockbuild through the first quarter of 2021.
Oil prices are already largely reflecting the latest bad news on demand, noting the 3-4pc drops in Brent and WTI crude prices in Asian trading today. Uncertainty over this week’s US election or another geopolitical shock could send prices slightly lower.
“But we are at distressed levels now, let’s face it. These numbers are not good, and you are probably likely to see further cutbacks of production levels” as a result.
WBL Shipping Agency
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