Oil prices continue slump as prospects for recovery look slim
Oil prices continued to fall today amid further signs that Opec’s record production cuts would not be sufficient to stabilize the oil market amid a coronavirus-driven recession.
Benchmark Brent crude dropped over six per cent for the second consecutive day, falling to $27.50, while West Texas Intermediate fell below $20 to stand at $19.51.
The falls came as the International Energy Agency (IEA) forecast that global demand would fall by 9.3m barrels per day in 2020.
The plunge will be led by declines in April, which will see demand drop by 29m barrels a day – nearly a third of global output – which will take the market back to levels last seen in 1995.
In May, the demand shortfall will be 26m barrels per day, with a slight recovery expected to have set in by June, where it will have narrowed to 15m barrels.
The scale of the plunge in demand dwarfs the 9.7m cuts promised by Opec and allies including Russia earlier this week, even if other producers such as the US and Canada also make large-scale cuts.
Even by December, demand is expected to be down 2.7m barrels per day.
The IEA said: “There is no feasible agreement that could cut supply by enough to offset such near-term demand losses.
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“However, the past week’s achievements are a solid start and have the potential to start to reverse the build-up in stocks as we move into the second half of the year”.
“Hard to imagine” how prices could rise
Cailin Birch, global economist at the Economist Intelligence Unit (EIU), said that she did not expect oil prices to rise much above their current levels for the next couple of months:
“The production boom by Saudi Arabia, several other OPEC countries and Russia in March will be enough to fill available storage capacity and reassure investors that the market will remain amply supplied for the foreseeable future.
“However, the deal should allow prices to pick up slightly in the second half of 2020, as the global economy enters into a fragile recovery”.
In the longer term, the EIU has forecast a price of $36 per barrel for Brent crude in 2021, leaving this January’s $70 prices a distant memory.
For Birch, producers’ hands are tied, with little left to be done in the face of record declines in demand:
“It’s hard to imagine any other measure or event that could lift oil prices. At the moment, the oil market is already facing severe sanctions on Iran, a conflict in Libya that has effectively stopped oil production, an entrenched political and economic crisis in Venezuela, and the list goes on.
“The global economy will have to begin a clear recovery, drawing on available oil stocks, before prices see any sustainable growth”.