Photo: Spencer Platt / Getty Images / Agence France-Presse
For the oil companies, the consequences will be sustainable: the sector capital spending expected to dip to a party this year.
Leaded by the economic paralysis due to the COVID-19, global oil demand will this year’s collapse of “history” of 9.3 million barrels per day (mbd), and will return in April to its lowest level in over a quarter of a century, according to the international energy Agency (IEA).
Containment measures on the quasi-totality of the globe, transport to the stop, industries continue to be weak… enough to precipitate global crude consumption to 90.6 million barrels per day (mbd) in 2020, bringing it to the level of 2012, said the IEA on Wednesday.
On the month of April alone, demand is expected to drop to 29 mbd compared to 2019, to levels not seen since 1995, before declining again to 26 mbd on a year in may, continuing the organization based in Paris in its monthly report.
“We’ve seen fade away all the growth of world demand recorded over the last decade. It is historic, ” said Neil Atkinson, head of oil markets at the IEA, during a conference call.
Of course, many States are planning their “déconfinement” and adopt robust plans to support the economy : “In June, a gradual recovery should start, but the application will remain down 15 mbd on a year “, says the IEA.
And anticipate in the second half of a very “progressive” : the consumer will always appear in December declined year on year by 2.7 mbd, compared with that of December 2019.
“Avoid saturation “
In the Face of the free fall in oil prices, the Organization of the petroleum exporting countries (OPEC) and its main partners, meeting within OPEC+, agreed on Sunday a decline of 9.7 million barrels per day in may and June, while the G20 countries have promised increased cooperation.
These measures ” are not going to rebalance the market immediately “, because “no possible agreement could reduce the supply of oil sufficient to offset such loons sudden demand,” warns the IEA.
But they constitute ” a first step solid “, greet-t-she : “By weakening the peak of the supply and by slowing down the swelling of inventory, it helps the system to absorb the worst of the crisis “.
Following the agreement of OPEC+, world production of crude oil could be sabrée of 12 mbd in may, down record.
What limit the overabundance of the offer. Moreover, China, India, South Korea or even the United States take advantage of during very low to fill their strategic reserves, which will also contribute to reduce congestion in the market.
“This will provide an increased flexibility […] The goal is to avoid saturation of the storage capacity available” noted Fatih Birol, executive director of the IEA, during a teleconference Wednesday.
Fault to be consumed, the oil must be put aside, at the risk of “threatening the whole logistics of the oil industry – ships, oil platforms and tanker in the next few weeks” and “saturate the storage capacity in the middle of the year,” warns the IEA.
Challenges for the industry
The improvement could then take place : between the cuts from the OPEC+, the swelling of the strategic stocks and the economic recovery, the agency predicts that the demand becomes greater than supply of crude in the second half of… “provided that the containment measures are softening” of the world.
Another factor that may alleviate the pressure : in the face of the current low, and infrastructure bottlenecks, the producing countries outside Opec could reduce their offer by more than 2 mbd in 2020.
For the oil companies, the consequences will be sustainable : the investment expenditure of the sector should dive down a third this year, to 335 billion dollars, the lowest for 13 years – and the drying up of financial resources should complicate their energy transition, warns the IEA.
On the side of the refineries in the face of excess capacity and endemic, the challenge is of size.
Compared to the oil shock of the 1980s, which had led to the closure of refining capacity of 12 mbd, “the shock 2020 is of a different nature and its expected duration is relatively short poses thorny problems,” notes the agency.
“The temporary closures of refineries are needed to balance the market, but the crisis is likely to result in closures permanent. A certain amount of excess capacity waiting in the wings as an extra boost to be eliminated, and the COVID-19 may well deliver the coup de grace “.