The old idea of Peak Oil was running out. The new theory is that renewables + EVs will cut demand permanently. Right now, however, we are in a massive market shrinkage from covid-19, and a production and price war between Russia and Saudi Arabia. In a production war, the price is projected to fall as low as $20/bbl, but in fact a deal has been struck to cut production and keep prices much higher. Less oil produced, at higher prices; less oil bought and burned; less CO2. For now.
I can live with that.
Is it the end of the oil era?
Volatility in the oil markets has played out in the news recently, driven by the Covid-driven collapse in demand and a war for market share between Saudi Arabia and Russia. A G20 meeting is to be held to try and find a way to cut production. As states and the oil majors look to shore up the price though, it’s possible that the coronavirus crisis might be what topples the fundamental driver of the current economic order.
- The international Brent benchmark is down 2.7% to $32.03 per barrel after giving up steep gains earlier this afternoon.
- According to the Wall Street Journal, Saudi Arabia has agreed to cut 3.3 million barrels a day from its current production levels of 12 million barrels per day and Russia has agreed to cut 2 million barrels per day from its current production of 10.4 million barrels per day.
- A virtual meeting this afternoon included members of OPEC and other oil producing nations, known collectively as OPEC+; the Journal reports that most delegates who attended agreed to collective production cuts of 10 million barrels per day in May and June followed by cuts of 6 million barrels a day until April 2022.
- Over the last few weeks, the pressure on the oil market has boiled down to supply and demand: demand for fuel has plummeted as people around the world stopped traveling and working as a result of the coronavirus, and supply was set to skyrocket as Saudi Arabia and Russia ramped up production and cut prices.
- Last week, U.S. shale driller Whiting Petroleum WLL became the first major casualty of the crisis, filing for Chapter 11 bankruptcy protection amid the major drop in oil prices.
Crucial quote: “The supply and demand fundamentals are horrifying,” OPEC Secretary-General Mohammed Barkindo said in his opening remarks at the meeting today. Barkindo said the decline in the second quarter alone would be “close to 12 million [barrels a day] and expanding,” which is “unprecedented in modern times.”
With much of the world in lockdown as the corona virus pandemic rages on, demand for oil has fallen off a cliff. People aren’t traveling and business has slowed, reducing the need for jet fuel and gasoline.
“With the effects of COVID-19 continuing to weigh on global demand, it’s likely global crude storage capacity maxes out in 2Q20, creating a nightmarish scenario and the possibility that crude could test the $10/bbl threshold,” Raymond James analyst John Freeman said in a note to clients Monday.
The current deal to slash production staves off that disaster in exchange for a different one.
Global oil demand set to see first quarterly decline in over 10 years
The International Energy Agency said in a report Monday that in a worst case scenario — if the coronavirus continues to spread globally and China's need for oil remains subdued — global oil demand could fall by as much as 730,000 barrels a day in 2020.
The Paris-based agency, which monitors energy markets for the world's most advanced economies, says its base case is for a slump in demand of around 90,000 barrels a day, assuming that the situation in China improves in the second quarter.
Oil crashes by most since 1991 as Saudi Arabia launches price war
"While the situation remains fluid, we expect global oil demand to fall in 2020 — the first full-year decline in more than a decade — because of the deep contraction in China, which accounted for more than 80% of global oil demand growth in 2019, and major disruptions to travel and trade," the IEA said in its March oil market report.
Global Oil Demand in Freefall on Pandemic, IEA Chief Says
Fatih Birol’s comments add to the dire outlook for the oil market with traders, banks and analysts forecasting a huge oversupply as governments shut their economies to combat the contagion. The effects of the glut will be felt for years to come, Birol said.
“Today 3 billion people in the world are locked down. As a result of that, we may see demand fall” by as much as 20 million barrels a day, IEA’s Executive Director Birol said at an online event hosted by the Atlantic Council on Thursday.
OK, maybe not that much.
Global oil demand set to decline in 2020 as COVID-19 spreads
Goldman Sachs sees 2020 oil demand falling by 150,000 b/d
Nope. Much more than that.
FGE predicts 220,000 b/d demand contraction from 2019
Nope.
Other analysts see modest 2020 growth despite outbreak
HAHAHAHAHAHAHAHAHAHAHA!!!!@!