U.S. oil prices fell sharply last week, down nearly 8%. Concerns about overseas public health safety issues spread, and global crude oil demand expectations dropped significantly. However, OPEC+ did not reach an agreement on further production cuts at last week’s production reduction meeting. Oil prices fell sharply as a result.
The OPEC+ production reduction agreement ended in vain, and Russia opposed the agreement
At the OPEC meeting last Friday, Russia opposed the plan proposed by Saudi Arabia for the Organization of the Petroleum Exporting Countries (OPEC) and its allies to cut crude oil production. However, overcapacity caused by global public health security continues.
Saudi Arabia, as the actual leader of OPEC, is actively promoting OPEC and its allies, including Russia, to reduce production by 1.2 million barrels per day. However, Russia rejected this plan and proposed at the Vienna Conference to maintain existing oil production quotas in the second quarter.
Originally, the outside world expected that this meeting would reach a consensus among the 23 countries on the issue of oil production reduction, but now the situation has taken a turn for the worse. The head of energy research at Goldman Sachs said in a recent report that with the outbreak of the epidemic, global crude oil demand is expected to decrease by 2.1 million barrels per day in the first half of 2020. OPEC’s oil production cuts will “help maintain a normal ratio of oil demand and inventories this year.”
He also wrote: “Even if production is reduced by another 1 million barrels per day, it is far from making up for the 2 million barrels of daily decline in oil demand.”
Informed sources said that an ongoing The plan discussed is for the entire OPEC+ to reduce production by 150 barrels per day. Representatives at the meeting said that the OPEC+ Joint Ministerial Monitoring Committee is discussing a plan to cut oil production by 1.5 million barrels per day. The meeting is being held in Vienna and no final decisions have been made, they said, speaking on condition of anonymity because the discussions are private.
Russia has resisted any form of production-cut deal for weeks despite intense lobbying from Saudi Arabia. As a compromise, Saudi Arabia is considering shouldering major production reduction targets with its allies Kuwait and the United Arab Emirates.
Iran’s Oil Minister Bijan Zanganeh said when he arrived in Vienna to attend the meeting: “I believe Russia will persist until the last minute before agreeing to reduce production.” The implication is that there is still a possibility of softening Russia’s attitude.
The chief strategist of Royal Bank of Canada (RBC) said in a recent report: Despite opposition, Russia may give up on production cuts because Russia needs to rely on high oil prices to support its overseas military operations. .
Concerns about the global economic slowdown are still severely suppressing crude oil market demand
Foreign media reported that the Organization for Economic Cooperation and Development OECD The latest economic forecasts illustrate the dangers the epidemic poses to global economic development. The slowdown in global economic growth has severely suppressed demand for crude oil.
According to reports, the OECD warned on the 2nd that the epidemic is plunging the world economy into the most serious downturn since the global financial crisis. It urged governments and central banks of all economies to take countermeasures to avoid A deeper recession occurs.
The OECD said in its latest economic outlook that global economic growth this year is expected to be only 2.4%, the lowest level since 2009 and lower than the 2.9% forecast in November last year.
OECD predicts that, assuming the epidemic peaks in China in the first quarter of this year and the epidemic in other countries is mild and controllable, global economic growth may return to 3.3% in 2021. However, the organization warned that if the epidemic spreads in Asia, Europe and North America, global economic growth may fall to 1.5% this year.
The Asian Development Bank said on Friday that the epidemic is expected to reduce global economic growth this year by 0.1 to 0.4 percentage points, and fiscal losses are expected to be between US$77 billion and US$347 billion. The ADB said that economic growth in developing Asia except China may decrease by 0.2 to 0.5 percentage points this year.
IMF Chairman Georgieva published an article on March 4, local time, stating that due to the rapid spread of the epidemic, the global economic growth rate in 2020 is expected to be lower than the 2.9% in 2019. Hopes for stronger economic growth in 2020 have been dashed.
Georgieva said that the IMF currently expects global economic growth in 2020 to be lower than 2.9% in 2019, and will issue revised forecasts in the next few weeks. Previously, the IMF projected global economic growth in 2020 at 3.3% in January. Georgieva said, “This year’s growth will be lower than last year’s level, but it is difficult to predict how much lower it will be and how lasting the impact will be.”
Georgieva said that unfortunately Yes, we have taken a step towards a more severe situation. As the epidemic spreads around the world, the economic outlook for the organization has become bleak. As long as the duration of the epidemic is unknown, uncertainty will remain high.
According to the latest news on the 4th, S&P Global Ratings lowered its forecast for U.S. economic growth on Tuesday and said that a rapidly spreading epidemic may bring “substantial disadvantages to the U.S. economy.” The impact will be longer and deeper than previously expected.
S&P has previously lowered its first-quarter economic growth forecast for the United States to less than 1% from the previous forecast of 2.2%, and expects a gradual recovery in the next few quarters. Now, S&P U.S. Chief Economist Beth Ann Bovina predicts that the U.S. economic growth will be less than 1% in the second quarter. However, with such a strong response from the Federal Reserve, market sentiment still has not improved much. According to market participants, the Federal Reserve’s emergency interest rate cut was intended to respond to investor concerns and would have been helpful in stabilizing market expectations. But at the same time, the Fed’s taking such a rare step also hints at the seriousness of the current market and epidemic problems. Therefore, market panic will not be eliminated immediately until the epidemic prevention situation becomes clearer.
World Health Organization Director-General Tedros Adhanom Ghebreyesus said that the agency is most concerned about the epidemics in South Korea, Italy, Iran and Japan. He said the virus has the unique ability to spread in communities, but with the right measures, the epidemic can be controlled. But Tedros stressed that “we are in uncharted territory.”
According to the CME Fed Watch Tool, the market’s probability that the Federal Reserve will further cut interest rates by 25 basis points to 0.75%-1.00% in April is still as high as 68.6%.
Many institutions have significantly lowered their forecasts for global crude oil demand
Currently, the IEA predicts that global crude oil demand will grow at 800,000 barrels per day in 2020, which is far lower than The 10-year average is 1.3 million barrels per day.
Goldman Sachs expects global crude oil demand to fall by 150,000 barrels per day this year, becoming the first major Wall Street bank to predict that global crude oil demand will shrink in 2020.
Consulting firm FGE predicts that crude oil demand will fall by 220,000 barrels per day in 2020, and IHS Markit predicts that global crude oil demand will fall by 3.8 million barrels per day in the first quarter of this year compared with the same period last year. Morgan Stanley lowered its crude oil demand growth forecast to 500,000 barrels per day, and Energy Aspects lowered its forecast for crude oil demand growth by 200,000 barrels per day.
OPEC’s dilemma is that on the one hand, countries need to significantly reduce production to prevent the crude oil market from falling into an oversupply situation. On the other hand, with the spread of the epidemic, the outlook for crude oil demand is increasingly bleak. Crude oil demand has grown almost every year since 1984, except during the economic crisis of 2008 and 2009 and during the U.S. economic recovery in 1993. </p
