SYDNEY (BLOOMBERG, REUTERS) - Oil is entering a period of unparalleled demand destruction this month that promises to permanently alter the industry for years to come.
Daily consumption will plummet by 15 million to 22 million barrels in April from a year earlier, according to estimates from some of the world's most influential energy analysts. The crash has already led to refiners slashing processing, drillers halting output and storage tanks swelling across the world.
"This will likely be a game-changer for the industry," Goldman Sachs Group analysts including Jeffrey Currie and Damien Courvalin said in a March 30 note. "It is impossible to shut down that much demand without large and persistent ramifications to supply."
The demand slump is being exacerbated by former Opec+ allies Saudi Arabia and Russia pumping as much crude as they can in a battle for market share, heaping additional pressure on shipping, tanks and pipelines. Goldman sees around 20 million barrels a day flowing into storage in April, while IHS Markit expects the world will run out of space to store oil by the middle of the year.
Few in the industry will be spared. April is also set to be the worst ever month for global jet fuel demand, while industry consultant FGE forecasts American gasoline consumption will plunge by 50 per cent from a year earlier. Energy Aspects Ltd predicts global benchmark Brent crude may drop to near US$10 a barrel, a level not seen in more than two decades.
On Wednesday, crude prices slid further on Wednesday, following their biggest-ever quarterly and monthly losses, as a bigger-than-expected rise in US inventories and a widening rift within Opec heightened oversupply fears.
As of 0643 GMT, Brent crude was down by US$1.02, or 3.9 per cdent, at US$25.33 a barrel. US West Texas Intermediate crude was down 35 cents, or 1.7 per cent, at US$20.13 a barrel, after giving up an earlier gain which analysts said was driven by position building at the start of a the new quarter.
Oil prices are near their lowest since 2002 amid the global coronavirus crisis that has brought a worldwide economic slowdown and slashed oil demand. Crude futures ended the quarter down nearly 70 per cent after record losses in March.
Adding to the downward pressure, sources told Reuters that top US officials have for now put aside a proposal for an alliance with Saudi Arabia to manage the global oil market.
The Trump administration plans to lease out space for energy companies to store oil in the nation's Strategic Petroleum Reserve, after a previous effort to buy millions of barrels for the emergency stockpile was cancelled over a lack of funding.
An oil price crash in April sets up a bleak second quarter for the market, potentially causing some producers to go to the wall and destabilizing governments in many Opec nations. A near-term recovery in prices seems unlikely, with around 70 per cent of 130 respondents to a Bloomberg Intelligence survey saying they see Brent still below US$30 a barrel by June.
With the world's biggest economies in lockdown due to Covid-19 and Brent at a 17-year low, a near-term recovery seems unlikely as demand remains in free-fall and Saudi Arabia and Russia entrench supply dominance.
While the crisis will see the energy industry finally achieve the restructuring it so badly needs, according to Goldman, the push for de-carbonization could hinder its recovery when demand returns.