Global commodities trader Trafigura’s chief economist said oil demand could fall by more than 30 million barrels per day (bpd) in April, as the global economy grinds to a near halt due to the coronavirus.
The forecast, the highest yet from a senior industry forecaster, equates to around a third of the world’s daily oil consumption.
Saad Rahim, chief economist at the Geneva-based trader, said a battle for market share between Saudi Arabia and Russia had become increasingly irrelevant now that some 3 billion people are under lockdown to the prevent the spread of COVID-19, with no clear end in sight.
“You can see every now and then when Trump says he will talk to Putin about energy, the market picks up a bit but…it’s too late,” Rahim said by telephone.
Saudi-led OPEC and Russia failed to reach a deal to deepen supply cuts early this month, leading both countries to promise production increases from April.
Rahim pegged global refinery run cuts at around 7-8 million bpd but saw them rising to 12-13 million bpd in the next two or so weeks as people and goods move around even less.
“In Europe and some parts of the United States, traffic is at 10% of the normal level in major metropolitan areas like San Francisco, Paris and Italian cities,” he said, while airline travel in the United States is down 90% versus last year.
The only consistent fuel demand was coming from a recovering China, global military units and the parts of Africa that are still moving for now.
Producers will have to start cutting more as next month storage will run out.
“If oil demand destruction reaches 30 million bpd, that means 1 billion barrels of crude that needs to be stored in just one month. Globally there’s only 800 million barrels of onshore storage plus another 100-150 million of floating,” Rahim said.
He said U.S. oil output was set to fall because, unlike during the 2014 price crash, shale oil firms have lost the opportunity to borrow from the debt or equity markets.
They are also unable to squeeze service costs any further and need to start 2-3 million bpd of new output each year to maintain flat production as good reserves are depleting rapidly.
Longer term, the days of U.S. oil output leaping by 1 million or more bpd each year are at an end. Instead, annual increases to daily output will only be several hundred thousand barrels as the shale industry will increasingly consolidate, resulting in a more cautious approach.
“On the flip side, from a sudden stop we’ll see a quick pop back up especially on gasoline,” Rahim said, looking ahead to when the lockdowns end.