Page 10 - NorthAmOil Week 15

NorthAmOil PERFORMANCE NorthAmOil
Oil plunges again after IEA paints bleak picture
GLOBAL
BRENT sank back below $30 per barrel this week, despite OPEC+ finalising a deal on his- toric cuts, amid expectations that demand will plunge to a 25-year low this month.
The International Energy Agency (IEA) painted a bleak picture of the market’s outlook in its monthly report published on April 15. The agreement between OPEC and its allies to take 9.7mn barrels per day off the market in May and June represents a “solid start,” the IEA said, but demand is slated to plummet 29mn bpd year on year this month alone, and 26mn bpd in May. The recovery will start to gain traction in June, but demand will still be 15mn bpd below the level a year earlier. Full-year demand will drop by 9.3mn bpd, the IEA warned.
“By lowering the peak of the supply overhand and flattening the curve of the build-up stocks, they help a complex system absorb the worst of this crisis,” the agency said. “There is no feasible agreement that could cut supply by enough to offset such near-term demand losses. However, the past week’s achievements are a solid start.”
Demand over the second quarter will be 23.1mn bpd below the amount a year earlier, the IEA said, and the recovery will be slow, with consumption in December still down 2.7mn bpd y/y.
Despite OPEC+ efforts, and sharp declines in the output of other producing nations, stock build-ups still threaten to overwhelm the indus- try’s logistics. Available storage capacity could be
filled by mid-year, the IEA said, with bottlenecks already emerging in other parts of the logistics chain. Chartering costs for very large crude carriers (VLCCs), which are increasingly being used for floating storage, have doubled since February, the agency estimated.
“Never before has the oil industry come this close to testing its logistics capacity to the limit,” it said.
While low oil prices would normally come as a benefit to consumers, this benefit is diminished because around 4bn people are currently living under some form of coronavirus (COVID-19) lockdown.
“Low prices threaten the stability of an indus- try that will remain central to the functioning of the global economy,” the IEA said. “Even with demand falling by a record amount this year, oil companies still face the challenges of investing to offset natural production declines and to meet future growth.”
The IEA predicted that capital expenditure in the global upstream industry would slump 32% this year to $335bn, marking its lowest level in 13 years. Economies heavily dependent on oil revenues could jeopardise already fragile social stability. Cash-strapped oil companies will also find it harder to invest in technologies needed for the clean energy transition.
Brent futures are down 7.6% as of 11:00 EDT at $27.40 per barrel, whereas West Texas Inter- mediate (WTI) has weakened 3.1% to $19.50.™
The IEA has warned that available storage capacity could be filled by mid-year.
The IEA predicted that capital expenditure in the global upstream industry would slump 32% this year to $335bn.
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w w w . N E W S B A S E . c o m Week 15 16•April•2020