OPEC lowers projection for 2020 as fear of drastic fall in oil price heightens
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ON Wednesday, the Organisation of Petroleum Exporting Countries, OPEC, revised its projected forecast for global crude oil demand growth in 2020 due to uncertainty brought by the outbreak of Covid-19 in China and Russia’s refusal to cut crude oil production.
In its monthly report, OPEC announced that 230,000 barrels per day were stripped from the 2020 global demand projection after China’s economic activities came to a halt, which means the global oil cartel would have to stop 570,000 barrels per day which accounts for 2 per cent of its global crude oil production to prevent an oversupply that will crash global crude prices.
“The impact of the Coronavirus outbreak on China’s economy has added to the uncertainties surrounding global economic growth in 2020, and by extension global oil demand growth in 2020….require continuous monitoring and assessment to gauge the implications on the oil market in 2020,” the report hinted.
OPEC, alongside its alliance OPEC+, has supported the proposal of its technical committee to put in place 600,000 barrels per day crude oil production cuts, but Russia is requesting for time to consider the proposal.
“The coronavirus outbreak is expected to mainly impact the Asian jet fuel and gasoline markets due to the suspension of flights and select road transportation services in China. However, the full extent of the coronavirus impact on product markets should be more evident in the coming months.” the report stated.
Nigeria’s crude benchmark, Brent crude traded at $55.06 on Wednesday, while U.S. West Texas Intermediate, WTI, stood at $50.69, which is 1.5 per cent higher compared to January.
Both crude benchmarks have each fallen by 20 per cent since climbing to a peak in early January, the lower prices raise concern over demand in China during the Covid-19 outbreak.
In the report, OPEC projected that global oil consumption in 2020 will average 100.73 million barrels per day. This indicates that crude oil had risen by 990,000 barrels per day from 2019, which is down from January’s growth forecast of 1.22 million barrels per day.
The demand write-down outpaces OPEC’s downward revision of its non-OPEC supply forecast, which is expected to average 66.60 million barrels per day in 2020, up from 2.25 million barrel per day from 2019. However, January’s report had forecast growth of 2.35 million barrels per day.
In the report, Libya was blamed for the bulk of the fall, with its production contracting by 344,000 barrels per day, attributed to a blockade on its oil ports imposed by opposition militias.
OPEC said it expects a major fall in US production growth, which was revised down by 166,000 barrels per day from last month’s estimate, due to “independent shale oil companies facing financial challenges and a slowdown in drilling and well completion.”
US output is currently projected to grow by 1.26 million barrels per day year on year.
OPEC as a whole produced 28.86 million barrels per day in January, a fall of 510,000 barrels per day from December, according to an average of the six secondary sources used by the organization to track output.