In February 2020, international oil prices plummeted by more than 10% for the second consecutive month. Due to the serious deterioration of the global public health situation, the bleak energy demand outlook, and OPEC+’s delay in reaching a consensus on further increasing production cuts in the future, resulting in Market panic is out of control.
ICE Brent crude oil futures closed down 11.60% and hit a new low since July 2017 US$48.94/barrel; NYMEX crude oil futures closed down 12.34%, hitting a low since December 2018 to US$43.85/barrel.
The outlook for energy demand has cast a major shadow
The new coronavirus pneumonia has spread to more than 40 countries and regions around the world. Hundreds of new coronavirus cases have been reported across Europe and the Middle East, sending a devastating shock to the global economy.
A number of countries, including Greece, Georgia and Brazil, have confirmed cases of the new coronavirus for the first time. At the same time, authorities have implemented more travel restrictions and quarantine measures on multiple continents, and many airlines around the world have canceled hundreds of thousands of flights.
The market is concerned that the virus could spread throughout the United States and develop into a global pandemic. The federal Centers for Disease Control and Prevention (CDC) says Americans should start preparing for the spread of the novel coronavirus.
Jim Ritterbusch, president of Ritterbusch and Associates, said: “Every time there is major news, especially news about new cases in New York and other parts of the United States, it will force the market to sell off further and push normal fundamentals out of the equation. Toss it to the sidelines.”
Oil market trading showed that investors expect the supply glut to persist for a long time, hurting demand as the virus spreads to large economies such as South Korea, Japan and Italy.
Consulting firm Fact Global Energy predicts that due to the epidemic, oil demand will increase by 60,000 barrels per day in 2020. The company called this increase “almost zero.”
Satoru Yoshida, commodities analyst at Rakuten Securities, said: “People are worried that the new coronavirus may cause the global economy and oil demand to be affected more than expected, which may put pressure on market sentiment.”
OPEC, IEA and EIA have all lowered their demand forecasts this month
The International Energy Agency (IEA) pointed out in its monthly report, Global crude oil demand is set to decline this quarter for the first time in more than a decade as the public health crisis takes hold. This expectation indicates that despite the latest production cuts by OPEC and its allies, the crude oil market will still face a serious oversupply. The crisis is still ongoing, and the exact impact is difficult to judge at this time.
The IEA said in its monthly report that public health risks have a profound impact on the oil market, and that this crisis has given global oil Demand has taken a severe blow. “Demand is currently expected to decrease by 435,000 barrels per day in the first quarter, the first quarterly decline in more than 10 years; overall in 2020, we have revised down our global oil demand growth forecast by 365,000 barrels per day. , falling to 825,000 barrels per day, the lowest since 2011.”
The IEA said in its monthly report that OPEC crude oil production fell to the lowest level since the 2009 recession in January. January was also the first month that OPEC+ committed to further production cuts. The output of the 10 member countries participating in the agreement was 500,000 barrels per day lower than the group’s new target, with a compliance rate of 143%.
Affected by the new coronavirus epidemic, the Organization of the Petroleum Exporting Countries (OPEC) lowered its forecast for global oil demand growth this year and said that as oil-producing countries began to implement a new supply restriction agreement, the organization Production dropped significantly in January.
OPEC said in a monthly report that demand for its crude oil will average 29.3 million barrels per day in 2020, 200,000 barrels per day less than its previous forecast. OPEC oil production in January was below its average production target for 2020 due to planned and involuntary production cuts.
The U.S. Energy Information Administration (EIA) has lowered its forecast for global oil demand growth this year by 310,000 barrels per day due to the impact of the coronavirus epidemic on global oil consumption.
EIA Director Linda Capuano said, “Despite the current disruption to crude oil supply, travel restrictions implemented in response to the coronavirus epidemic and the resulting economic slowdown are expected to reduce oil demand, making Crude oil prices remained below US$60 per barrel in the first half of this year.”
The IEA monthly report also wrote that if oil prices continue to fall, it will also be bad news for U.S. oil companies that have responded quickly, but this year it will The increase in output has little impact. The economic impact of the epidemic means that it is difficult for consumers to feel the benefits of falling oil prices.
U.S. crude oil production has increased significantly due to advanced shale oil production technology. Despite a decline in crude oil production in December, EIA’s weekly production data showed that U.S. crude production rose in January and February, hitting a record high of 13 million barrels per day.
Goldman Sachs analysts pointed out that current oil demand may decrease by 4 million barrels per day, which will be a peak level. New oil demand in 2020 is now expected to be 600,000 barrels per day, previously expected to be 600,000 barrels per day. 1.1 million barrels.
Russia has become a stumbling block for OPEC+
OPEC+ held an emergency meeting to discuss the impact of public health security on the crude oil market and promote the expansion of The scale of production reduction and the extension of the production reduction agreement period. However, there are clear differences between OPEC leader Saudi Arabia and non-OPEC oil-producing country Russia on the issue of further production cuts.
Russia said it needed more time to decide whether to follow up on the Organization of the Petroleum Exporting Countries (OPEC)’s plan to further cut production, saying U.S. crude oil production growth will slow and global demand remains solid.
Novak said Moscow needed more time to assess the situation, but said he was not too worried about demand and saw supply growth slowing, a sign that OPEC and its allies should not rush into a decision to further cut production. .
Novak also said that U.S. oil production is not growing as fast as before. Production increased by 1.3 million barrels per day last year and is expected to be less than 1 million barrels per day this year. U.S. oil production growth is slowing due to falling prices.
Hansen, a commodity strategist at Saxo Bank, said that the short-term damage caused by public health events to crude oil demand has already occurred, and whether oil prices can resume upward momentum still depends on the actions OPEC+ will take.
BP said the global economic slowdown is expected to reduce oil demand growth in 2020 by 300,000 barrels per day to 500,000 barrels per day, equivalent to 0.5% of total demand.
The International Monetary Fund reported that global oil demand may start to decline earlier than expected, putting pressure on the finances of the Gulf Cooperation Council. The Gulf Cooperation Council is made up of six countries and accounts for one-fifth of the world’s crude oil production.
However, Ravil Maganov, Lukoil’s first executive vice president, told reporters after a meeting with Russian Energy Minister Novak: “(The government) has not yet made a decision… We discussed all (situations) ). Most (oil companies) tend to extend production cuts for one quarter.”
Kazakhstan Energy Minister Nurlan Nogayev also said that Kazakhstan and Russia will coordinate to reach a common position on possible further production cuts. . “We will agree on our positions (mutually) because Kazakhstan and Russia are strategic partners.”
Saudi Arabia hopes that OPEC+ countries will make additional production cuts on top of the existing production cuts of 1.7 million barrels per day. 500,000 barrels per day to 600,000 barrels per day, and extend the production reduction agreement to the end of June or the end of December 2020. It is reported that this initiative has the support of Gulf oil-producing countries such as the United Arab Emirates and Oman, but Russia rejected the proposal.
This production cut, coupled with support from supply disruptions in Libya and Iraq, may be enough to prevent a major oil price collapse, but given the severe hit to demand, it is unlikely that the market will factor in this production cut. That’s enough to be bullish on oil prices, as the market is looking at an expected figure of close to 1 million barrels per day.
The geopolitical situation is a potential supporting factor
The United States imposed sanctions on Rosneft Trading SA due to the The company became an important middleman in Venezuelan oil sales. U.S. President Trump also said that the United States is preparing to impose more sanctions on Venezuela’s oil sector in an attempt to curb the funding sources of Venezuelan President Maduro’s government.
The Russian Ministry of Foreign Affairs stated that “sanctions will not and cannot affect Russia’s course in international affairs, including cooperation with the legitimate governments of Venezuela, Syria, Iran or any other country.”
Russian President Putin, French President Macron and German Chancellor Merkel had a phone call on the 20th to discuss the Syrian and Libyan issues.
Putin emphasized the need to respect Syria’s sovereignty and territorial integrity and take effective measures to eliminate the threat of terrorism. Macron and Merkel expressed their willingness to help ease tensions in northwestern Syria.
When talking about the Libyan issue, the leaders of the three countries expressed their full support for the decision to cease fire and resume political dialogue at the Berlin Summit on Libyan Issue. </p
