Price Regulation: Coronavirus causes OPEC to slash Global Oil Demand Forecast for 2020

Organisation of the Petroleum Exporting Countries (OPEC), further slashed its 2020 oil demand forecast on Thursday (yesterday), due to the Coronavirus outbreak, and agreed to new output cuts to offset the collapse in demand resulting from the epidemic.

Similarly, OPEC ministers agreed that oil production should be cut by 1.5 million barrels a day (mbpd) with members cutting 1.0 mbpd and non-OPEC allies led by Russia cutting 0.5 mbpd—however, Russia has yet to make a decision.

In December 2019, global oil demand growth (GODG) for 2020 was forecast to be 1.1mbpd. But, because of the coronavirus, that forecast was slashed to 990,000 bpd by February 2020. This recent slash has almost halved that, with the GODG currently at 480,000 bpd.

Citing the coronavirus as a reason, OPEC in a statement said, “The COVID-19 outbreak has had a major adverse impact on global economic and oil demand forecasts in 2020, particularly for the first and second quarters…. moreover, the unprecedented situation, and the ever-shifting market dynamics, means risks are skewed to the downside,” this followed the conclusion of its meeting in Vienna, the Austrian Capital.

Last month, the International Energy Agency (IEA) said in its Oil Market Report that the coronavirus outbreak would lead to the first quarterly contraction in global oil demand in more than 10 years. The IEA slashed its 2020 oil demand growth forecast by 365,000 bpd to just 825,000 bpd—which would be the lowest oil demand growth since 2011.

READ MORE: New OPEC Deal: Algeria Oil Output to Reduce by 12,000 BPD

Meanwhile, research firm IHS Markit predicted Wednesday that oil demand will suffer its steepest decline on record in the first quarter—worse even than during the 2008 global financial crisis—as schools and offices close, airlines cancel flights and a growing number of people hunker down at home. IHS Markit traces most of the reduction in demand to China, where the coronavirus has caused what they describe as an “unprecedented stoppage” of economic activity.

The 8th ministerial meeting of OPEC and non-OPEC countries, where decisions about the slash will be made, is currently on at the OPEC headquarters in Vienna. Member countries of OPEC from Africa, including Nigeria, Republic of the Congo, Libya, Equatorial Guinea, Gabon, Algeria and Angola, are represented there.