Oil Demand Slowdown Hits Prices Again; Recovery a Long Road Ahead
The Mexican crude basket followed the footsteps of the world’s other major benchmarks yesterday, falling 8.25 percent by the end of the day’s trading, reports El Economista.
The price drop, equivalent to US$2.84 per barrel, was slightly heavier than Brent’s and WTI’s, which saw their prices cut by US$3.18 per barrel or 7.62 percent and US$3.26 per barrel or 8.23 percent respectively, according to the paper. Both the US and European mixes had faced steeper drops during the morning but were able to recover slightly.
Wobbles began on Tuesday after Saudi Arabia said it would be ending its voluntary production cuts this month. On Wednesday, whispers of climbing US storage levels were accompanied by the US Federal Reserve’s announcement of its gloomy US economy forecast and the OECD’s contraction forecasts for most major European economies. Later reports of historically-high US storage levels pulled the rug from under the market’s feet and WTI and Brent began to spiral.
Rystad Energy, the Norwegian energy consultancy, today released its latest update on global oil demands. In it, the company said that “our newest forecasts for oil demand now project a decrease of 11.8 percent for 2020 or 11.7MMb/d year-over-year. Our estimates show that total oil demand in 2019 was approximately 99.5MMb/d, which is now projected to fall to 87.8MMb/d in 2020.”
May saw the greatest reduction in demand, dropping by 19.8 percent to 79.2MMb/d says Rystad Energy, while June’s demand hit 84.3MMb/d, still 14.2 percent below year-on-year figures. The agency sees 2021’s demand averaging 96.5MMb/d.
The company also predicted a “gloomier investment-budget picture than previously thought” for spending in the global upstream sector. The oil price crash and subsequent budget cuts that will be enacted by most major operators have pulled upstream spending to a 15 year low. The “staggering 29 percent decrease of US$156 billion compared to 2019” will mean only US$383 billion is likely to be spent this year worldwide.
In another clear example of just how serious the COVID-19 crisis is, Rystad says that spending is forecast to be cut even further than it was during the global oil price crash in 2014, from which many analysts consider the industry to still be recovering.
The implications of this cut on Mexico have been seen in recent days and weeks, after PEMEX cancelled a number of large service contracts for vessels and platforms. One company, Perforadora Mexico, said that the cancellation of its three PEMEX contracts will almost certainly lead the company to bankruptcy.