Looking back on demand: world oil prices fell to $ 28 per barrel for the first time in almost two weeks

On Wednesday, April 15, world oil prices are steadily declining during global trading. In the middle of the day, the raw materials of the Brent benchmark on the ICE exchange in London fell by more than 5% - to $ 28 per barrel. The last time a similar value could be observed on April 2.

According to RT analysts interviewed, investors reacted negatively to the report of the International Energy Agency (IEA). The organization announced a fall in world oil demand in April by 29 million barrels per day - to the lowest level since 1995.

Moreover, according to the IEA forecast, in general, by the end of 2020, global energy consumption may decrease by 9.3 million barrels per day compared to 2019. As the head of the agency Fatih Birol emphasized, from the point of view of the collapse in demand for oil, the current year may be "the worst in history."

Experts attribute the observed demand dynamics to the consequences of the coronavirus pandemic. According to official data from the World Health Organization (WHO), the total number of people infected with COVID-19 coronavirus infection in the world exceeds 1.8 million, of which more than 119 thousand died. The spread of the disease and quarantine measures provoked a massive reduction in trade, passenger traffic and fuel demand. As a result, energy consumption is also reduced.

“Against the backdrop of the coronavirus pandemic and the closure of borders in 187 countries, the fall in oil demand by now may vary from 25 to 30 million barrels per day. Moreover, the latest OPEC + deal has not yet stabilized oil prices, because even taking into account the reduction in production, the supply significantly exceeds demand, ”said Artyom Deev, head of the AMarkets analytical department, to RT.

Recall that earlier the head of the Ministry of Energy of Russia Alexander Novak announced the approval of the terms of a new deal to reduce global oil production. It is expected that from May to June 23 OPEC + member countries will reduce production of raw materials by 9.7 million barrels per day.

Moreover, according to Novak, a number of states that are not members of OPEC + (USA, Norway, Argentina and Canada) can further reduce production. As the minister noted at a government meeting on April 15, as a result, the total reduction in the production of raw materials by world exporters could reach 15-20 million barrels per day.

The actions of countries - exporters of energy resources should restore the balance of oil supply and demand in the world. Meanwhile, it may take time to finally balance the market. The creator of the ITLEADERS venture capital club, Egor Klopenko, spoke about this in an interview with RT.

“Investors realized that a new deal to reduce oil production could not quickly balance the commodity market, and because of the virus, a large amount of unused fuel is still accumulating in storage facilities. Against the background of quarantine measures, the global economy is paused, which strikes at business activity, and as a result, at the demand for energy raw materials, ”the analyst explained.

In addition, experts associate the observed decline in oil prices with negative forecasts of the International Monetary Fund (IMF). On the eve of April 14, the organization announced a possible fall in the global economy in 2020 by 3% at once. As expected, the projected decline in global GDP may be the largest since the Great Depression of the 1930s.

“The emergence of negative forecasts for global growth, including from the IMF, lead to increased market anxiety. Due to the lack of positive news, traders are beginning to sell off some groups of risky assets, which include oil futures, ”said Anton Pokatovich, BCS Premier Analyst, in an interview with RT.

Fuel balance

Meanwhile, IEA experts predict a gradual restoration of the balance between demand and supply of oil in the second half of 2020. So, as quarantine measures are lifted, global energy consumption will begin to grow gradually.

“In the second quarter of 2020, demand is expected to be 23.1 million barrels per day lower than a year earlier. The recovery in oil demand in the second half of the year will be smooth, and in December it will still be 2.7 million barrels per day lower than last year's figures, ”the IEA forecast.

At the same time, agency experts do not rule out the formation of a deficit in the global oil market by the end of the year. So, if the terms of the OPEC + transaction are fully met and the production of raw materials by other large exporters is reduced, the global supply of hydrocarbons may fall below the level of demand.

“A decrease in supply volumes, taking into account reductions in OPEC +, will put the market in a deficit state in the second half of 2020. This will stop the growth of stocks in storage and return the market to normal conditions, ”the IEA report says.

According to the forecast of Anton Pokatovich, against the background of still maintaining an overabundance of oil in the global market until the end of spring, the cost of energy raw materials may remain in the range of $ 30–33 per barrel. However, already in the second half of the year, quotes can begin to grow and are able to gain a foothold above the $ 40 mark.

“If the global economy, and beyond it, the global demand for oil, starts to recover, then by the end of the year, oil prices could recover to levels of $ 42-48 per barrel,” the analyst concluded.