Since dropping below US$25 a barrel this week, an 18-year low, Brent crude has swung violently, with investors trying to assess the impact of OPEC+ output increases against falling demand due to measures to contain COVID-19.
On four occasions in the past two weeks, the global benchmark posted daily price swings of more than 10 percent.
Taking a snapshot of how much oil consumption is collapsing is impossible, but traders put the drop somewhere between 10 million and 20 million barrels a day, with some saying it might be falling even more.
Photo: AFP
California alone, where authorities have mandated a lockdown, accounts for 10 percent of total US oil demand and a 20 percent of jet-fuel consumption.
Even if demand recovers to normal levels by the middle of the year, this year is still on course to suffer the biggest decline in oil consumption since reliable records started in the mid-1960s.
Until now, the biggest annual contraction was recorded in 1980, when it tumbled by 2.6 million barrels a day as the global economy reeled under the impact of the second oil crisis.
West Texas Intermediate crude on Friday fell 11 percent to US$22.43 a barrel, down 29 percent weekly, the biggest since January 1991.
Brent crude fell 4.29 percent to US$29 a barrel for the day, bringing its weekly loss to 18 percent.
The drop in demand is a moving target as countries step up their measures to contain the pandemic.
FGE, an oil consultant that was among the first to recognize the severity of the problem, warned clients in a note that average demand this year could plummet by 12 million to 20 million barrels a day in its worse-case scenario.
Even a smaller contraction would far outstrip any production cuts that the OPEC+ alliance discussed two weeks ago, when Saudi Arabia tried and failed to convince Russia to agree to a fresh 1.5 million barrels a day reduction.
Even if Texas was to cut production, as some regulators are publicly arguing for, it would not make a huge difference.
Output cuts “wouldn’t prevent an unprecedented inventory build over the next months,” Goldman Sachs Group Inc oil analyst Damien Courvalin said, adding that oil prices are still likely to drop toward levels that force some producers to shut down their wells.
Oil traders and analysts see signs of surpluses building everywhere in the oil supply chain: jet-fuel is going unsold at major airports; traffic congestion has vanished from Seattle to Milan, indicating that fewer people are driving, and therefore gasoline demand is down sharply.
Factories are closing as their just-in-time supply chains are disrupted, reducing diesel buying.
In a striking example of the impact on traveling, Deutsche Lufthansa AG, Europe’s biggest airline, is planning to ground 700 out of its 763 aircraft in the near term, shrinking the flight schedule to a level last seen in 1955.
The biggest fuels pipeline connecting the US Gulf Coast oil refining hub with buyers on the US’ east coast — including Atlanta, Philadelphia and New York — is reducing flows by 20 percent due to lack of demand.
“We recognize the impact that COVID-19 is having on product demand,” the company that operates the Colonial pipeline told customers.
“Arguments that prices are already too low and positioning is extremely short are misplaced, because what the market is experiencing now is unprecedented,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.
The only relative bright spot in global oil demand is China, where consumption is slowly recovering after plunging at least 20 percent last month, when Beijing locked down hundreds of millions of people to slow the spread of the virus.
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