Worryingly for the industry, the IEA also projects that collapsing demand across global markets will mean that despite recent cuts in production by the OPEC+ bloc of oil producers, second-quarter oil inventories could build at a “massive” rate of some 17.4 mmbd, putting enormous pressure on tank farm and Strategic Petroleum Reserve capacities.
“We may see it was the worst year in the history of global oil markets,” said IEA Executive Director, Fatih Birol, who called on all oil-producing nations to take measures to “flatten the curve of the stock build-up.”
OPEC Cuts Demand Forecasts
In its April report released this week, the Vienna, Austria-based Organization of the Petroleum Exporting Countries (OPEC) was somewhat more optimistic than the IEA, but still expects a fall in global demand of 6.9 mmbd in 2020. OPEC stated that it believes the U.S. economy will “contract by 4.1 percent in 2020, following growth of 2.3 percent in 2019.” The organization expects an even greater economic decline of 6 percent across the Eurozone countries.OPEC said that the “Benchmark oil prices plunge prompted companies to respond by cutting capital expenditure to the lowest in 13 years,” while the cartel expects that oil supply will only grow in Norway, Brazil, Guyana, and Australia this year.
Saudi Price Discounts
According to a Bloomberg report, Saudi Arabia slashed its crude prices in the wake of the OPEC+ agreement to cut production by over 9 mmbd last week. Saudi Aramco offered reduced prices to customers in the Mediterranean and the lucrative Asian market, though prices to the United States and Europe increased slightly.In discounting its official crude prices in Asia while allowing prices to increase in North America and Europe—traditionally Russia’s backyard in terms of crude sales—Saudi Arabia may have been moving to dampen Aramco crude sales in the main markets of American and Russian producers, thus placating both President Putin and President Donald Trump, who helped broker the OPEC+ deal.
US Rig Counts Plummet
Energy market analysts Rystad Energy said in a recent report that the number of oil and gas rigs across the United States is in freefall.“From a long-term perspective, the pace of the rig decline in this down cycle keeps beating historical records,” according to the company. “The two-week decline pace reached almost 19 percent as of the last week, easily outperforming the previous two-week decline records of 14 percent and 11 percent achieved in 2015–2016. The horizontal oil rig count in the whole U.S. Land is already down by 26 percent from the peak level on 13 March 2020, four weeks ago.”