Even if the OPEC+ group and other major oil producers in the world were to agree to deep production cuts, they would be unable to prevent what is sure to be an enormous global inventory build this quarter due to unprecedented demand destruction, Fatih Birol, Executive Director of the International Energy Agency (IEA), has said.
The measures many countries have taken to try to flatten the curve of the coronavirus pandemic are destroying unprecedented volumes of oil demand as more than 3 billion people—from India to Europe to the United States—remain in lockdown.
As a result of restricted commuter travel, grounded flights, and economic slowdown, demand for oil in April is expected to drop by 20 million bpd year on year, and probably more.
Even if OPEC+ plus other producers were to discuss, agree to, and implement a collective cut of 10 million bpd, global oil inventories would still rise by 15 million bpd in the second quarter, the IEA’s chief told Reuters.
Earlier last week, the IEA said that the world has seen some oil shocks before, but “none has hit the industry with quite the ferocity we are witnessing today.”
The reason the shock is unique this time around, the IAE says, is because one of the usual stabilization factors, consumers, is unable to do its part. As billions of people around the world are still in lockdown, consumers are unable to react to falling prices like they usually do—by consuming more. So for as long as the pandemic lasts, boosts in demand that were seen during other oil shocks are “highly unlikely.”
Meanwhile, producers from the OPEC+ group and from another group are expected to discuss potential ways to react to the massive demand loss and the low oil prices that hit their lowest level in 18 years earlier this week.
While U.S. President Donald Trump touted a cut of 10 million bpd, and possibly 15 million bpd, many oil analysts, cited by Reuters, remain highly sceptical that an agreement of these proportions could be reached and implemented.