OB04_052020

Organizationof thePetroleumExportingCountries 16April 2020 Feature article: Summer oil market outlook Oil market highlights Feature article Crude oil price movements Commodity markets World economy World oil demand World oil supply Product markets and refinery operations Tanker market Oil trade Stock movements Balance of supply and demand i iii 1 6 9 24 33 47 53 57 63 68 105 OPEC bulletin 4–5/20 April 2020 Summer oil market outlook The oil market is currently undergoing historic shock that is abrupt, extreme and at global scale. The typi- cal seasonal low for refiners, at the end of the first quarter of each year, is being exacerbated by unprec- edented destruction in oil demand due to the global spread of COVID-19. In fact, oil demand in 2Q20 has been revised downward by almost 12 million barrels/ day y-o-y, with 60 per cent of the loss coming from transportation fuels, primarily gasoline and jet fuel. The virus containment measures that were mandat- ed and/or implemented by various governments have included far-reaching lockdowns, travel restrictions and social distancing exigencies, which currently af- fect over 40 per cent of the world’s population. So far, these restrictions have led to tumbling fuel consump- tion, amid product inventory builds, severely damag- ing jet fuel markets and driving gasoline margins into negative territory. The severity of the collapse is likely to result in sharper contraction in oil demand, particularly dur- ing 2Q20, extending into 3Q20 and 4Q20. In fact, the contraction is forecast to reach 12m b/d in 2Q20, about 6m b/d in 3Q20 and about 3.5m b/d in 4Q20. Challenges for product markets are expected to con- tinue, as plunging demand could promptmore refiners to reduce, or evenhalt, operations due to unfavourable economics, lack of product storage space or reduced staff availability. Margins could continue to trend downwards, as evidenced in Asia during February, if demand does not pick up soon. Similarly, global re- finery intakes dropped by 4.6m b/d, to reach 76.6m b/d, a multi-year record low in February, with Chinese operators witnessing most of the downside. Despite run cuts of nearly 20–30 per cent in most plants, gasoline stocks are on the rise in traditional US export markets, such as Latin America, which are backing out of delivery deals. This will further pressure gasolinemarkets ahead of the driving season. US refin- ers are already reporting heavy losses in 1Q20 returns. On the other side of the Atlantic, European refiners are challengedbygasolineanddiesel oversupplydue tode- clining fuel import requirements fromWest Africa and Latin America, as well as stronger competition fromUS refiners. In Asia, product markets are expected to re- main weak during the sum- mer months, as the nega- tive impact of COVID-19 will affect oil demand. India’s transition to Bharat Stage VI fuels, expected to support low sulphur motor fuels, will likely have an in- significant impact on consumption. The recovery of economic and in- dustrial activities in China in March promptedsome re- finers to increase run rates as of mid-March, sug- gesting that refinery runs could begin recovering globally around June or July, when applying the same timeline. Given this global crisis, the summer product outlook is forecast to suffer from run cuts in the short termand fromweak demand in the coming quarter as- suming slower recovery. In an effort to alleviate the current stark global oil market imbalance, OPEC and non-OPEC countries participating in ‘Declaration of Cooperation’ (DoC) convened two extraordinary Ministerial Meetings, on April 9 and 12, 2020, reaffirmed their continued commitment to a stable market, and agreed to adjust downwards their overall crude oil production by a his- toric 9.7m b/d, starting on May 1, 2020, for an initial period of two months, followed by an adjustment of 7.7m b/d until the end of the year and 5.8m b/d until April 30, 2022. Furthermore, they welcomed the G20 Extraordinary Energy Ministers’ Meeting and their voice of solidarity, and called upon all other major oil producers to provide commensurate and timely con- tributions to the stabilization of the oil market. The DoC continued its joint efforts, spearheaded by OPEC, aiming at restoring global oil market balance, amidst current uncertainties and volatility, in order to safe- guard efficient, economic and secure supplies of oil to consumers and a fair return on invested capital. M a r k e t R e v i e w