Oil demand is set to contract in 2020 as the coronavirus outbreak widened to 72 countries outside China as of Wednesday, threatening to put more pressure on the global economy and fuel demand, according to analyst projections this week. This is notable because oil demand has consistently increased every year for several decades, with the exception of a few occasions like the early 1990s recession. A contraction in oil demand in 2020 will be the first decline since the financial crisis of 2008-2009, according to S&P Global Platts.
“Over the last week, the situation has worsened with outbreaks now in a number of additional countries,” a Goldman Sachs analyst, Damien Courvalin, said in a report dated March 3. “We therefore reduce further our global oil demand growth forecasts to minus 0.15 million barrels per day in 2020 from 0.55 million bpd previously (and 1.1 million bpd before the coronavirus), its lowest annual growth rate since the financial crisis of 08/09,” Courvalin added.
He said the revisions were entirely outside China given the bank’s aggressive cuts made initially to China’s oil demand growth, the sharp slowdown in new coronavirus cases in China and steady but slow signs of recovery in domestic activity. Goldman Sachs expects a global oil demand loss of 2.1 million bpd in the first half of the year alone, and cut its oil price forecasts, expecting Brent to trough in April at $45 per barrel before gradually recovering to $60 per barrel by the end of the year. It earlier expected a $53 per barrel trough and a recovery to $65 per barrel.
Separately, an energy consulting firm, Facts Global Energy, said it expects global oil demand to contract by 220,000 bpd on average in 2020, “with strong risks still on the downside we believe, despite a major initiative now for a global economic stimulus.” “Global oil demand is now expected to contract by 2.3 million bpd year on year in the first quarter of 2020, before only returning to year-on-year growth in the third quarter of 2020,” FGE said. It had slashed its oil demand growth forecast to zero for 2020 last month. “The source of oil demand in its essence is very simple: producing things and moving things/people. If, as is happening now, production lines slow down or even stand still and global trade and travel stops, oil demand stops growing as well,” FGE said.