The volatile nature of the oil market is now becoming more evident than ever to new producer Guyana where production got underway just last December at ExxonMobil’s giant Liza field. Declining demand and prices mean producers around the world will bring in below projected revenues making the prudent management of mechanisms such as a sovereign wealth fund even more important.
Norway-based Rystad Energy’s forecast for global oil demand now projects a decrease of 0.6%, or 600,000 barrels of oil per day (bpd), year-on-year. “Our estimates show that total oil demand in 2019 was approximately 99.8 million bpd, which is now projected to decline to 99.2 million bpd in 2020,” Rystad Energy said in a comprehensive report calculating the effect of the novel coronavirus.
This is a severe downgrade compared to previous estimates and takes into account the quarantine lockdown in Italy, massive cancellations of flights by airlines, the travel ban between Europe and the US that was announced Wednesday, and Rystad Energy’s simulations of the virus’ growth patterns this year.
“We believe that global demand for road fuels will stay largely flat, in contrast to previous projections of growth. Road fuel demand in 2019 is estimated to have reached 49.7 million bpd. Prior to the coronavirus we expected this demand segment to grow to 50.3 million bpd in 2020, but we now see it reaching only about 49.8 million bpd,” the energy research company said.
Almost all of this reduction will occur due to reduced road traffic in the first half of 2020. In China alone, demand for gasoline and diesel road fuel was down by about 1.5 million bpd in February. Traffic in the country is now gradually returning to more normal levels.
In Europe, Rystad Energy expects a rising number of cities to implement quarantines and travel restrictions, in addition to those already in place in Italy. From this, we assume peak impact will be half of what was seen in China in terms of volume of reduced demand. However, it remains to be seen whether quarantines in Europe will last longer than those implemented in China.
Guyana recorded its first case of coronavirus on Wednesday and more cases have been emerging elsewhere in Latin America and the Caribbean region.
The impact on oil demand growth has been staggering, if not unprecedented, with February’s crude demand dropping by a shocking 4.6 million barrels per day (bpd), led by a 2.9 million bpd month-on-month drop in Chinese crude runs.