Energy research firm Rystad has released their latest COVID-19 – Scenarios and impact on global energy markets report.
The latest report said that it estimates that oil demand destruction in April could amount to 27 million barrels per day, of which nearly 5 million barrels per day will come from the three largest consumers; China, Japan and India.
As a consequence of weak demand there is a very real fear that the world may run out of storage capacity, causing refineries to shut-in and crude oil prices to reach extreme lows.
With the very low oil prices expected in 2020, and high prices expected in 2022, oil companies might see a business case to close down fields today and reopen in 2022, according to the report.
In addition, the projected drop in demand in April is now forecast to see even greater declines than previously stated, as strict lockdowns are being enforced in all corners of the world, now also in Russia.
Traffic is down significantly in both Japan and the US, where the emergence of dramatic statistics over the past week is reflected in reduced traffic levels in all states. Half of the impact is now seen in the rest of world ie South Asia, Southeast Asia, Australia, Latin America and Africa. According to Rystad “We now project the impact to last longer, as the spread of the virus will resist restrictions more than first expected.”
Rystad also notes that investment has also significantly been affected. The company expects upstream spending may fall 20% this year, which means investments will shrink by $100 billion from 2019 levels
This estimate is based on our new base case oil price scenario of $34 per barrel in 2020 and $44 per barrel in 2021. However, if the oil price should continue to hover around $30, the industry will be forced to dive into even deeper cuts, potentially changing the market landscape in the medium term.