SYDNEY • Oil is entering a period of unparalleled demand destruction this month that promises to permanently alter the industry for years to come.
Daily consumption will plummet by 15 million to 22 million barrels this month from a year earlier, according to estimates from some of the world’s most influential energy analysts. The crash has already led to refiners slashing processing, drillers halting output and storage tanks swelling across the world.
“This will likely be a game changer for the industry,” Goldman Sachs Group analysts including Mr Jeffrey Currie and Mr Damien Courvalin said in a note on Monday. “It is impossible to shut down that much demand without large and persistent ramifications to supply.”
The demand slump is being exacerbated by former Opec+ allies Saudi Arabia and Russia pumping as much crude as they can in a battle for market share, heaping additional pressure on shipping, tanks and pipelines. Goldman sees around 20 million barrels a day flowing into storage this month, while IHS Markit expects the world will run out of space to store oil by the middle of the year.
Few in the industry will be spared. This month is also set to be the worst month for global jet fuel demand, while industry consultant FGE forecasts American petrol consumption will plunge by 50 per cent from a year earlier.
Energy Aspects predicts global benchmark Brent crude may drop to near US$10 a barrel, a level not seen in more than two decades.
Crude prices slid further yesterday, following their biggest quarterly and monthly losses, as a bigger-than-expected rise in United States inventories and a widening rift within Opec heightened oversupply fears.
As of 0643 GMT, Brent crude was down by US$1.02, or 3.9 per cent, at US$25.33 a barrel. US West Texas Intermediate crude was down 35 US cents, or 1.7 per cent, at US$20.13 a barrel, after giving up an earlier gain that analysts said was driven by position building at the start of the new quarter.
Oil prices are near their lowest since 2002 amid the global coronavirus crisis that has slashed oil demand. Crude futures ended the quarter down nearly 70 per cent after record losses last month.
In addition, sources told Reuters that top US officials have for now put aside a proposal for an alliance with Saudi Arabia to manage the global oil market.
The Trump administration plans to lease out space for energy firms to store oil, after a previous effort to buy millions of barrels for an emergency stockpile was cancelled over a lack of funding.