Global oil demand to drop by 27% in April
16 April 2020
Global oil demand will drop by 27%—from 100 to 72.5 million barrels per day (bpd)—in April, as a result of lockdowns and travel restrictions, according to a Covid-19 impact analysis released by Rystad Energy on April 15th. For the full year, global oil demand is estimated to drop to 90.3 million bpd, or 9.6% year-on-year.
Global road traffic this week was at the lowest level seen in many years, down an additional 10% versus last week. The number of passenger flights was down more than 90% for seven key countries, and down 58% for the USA. This leads to a global oil demand destruction of 27.5 million bpd in April. Jet fuel demand will probably reach only 2.3 million bpd in May versus pre-Corona estimates of 7.3 million bpd, according to Rystad.
The upper chart shows remaining demand for liquids after the impact of lockdowns and travel restrictions. The lower chart shows the distribution of barrels “removed from the balances”. The red line shows oil demand in an alternative scenario, with a larger impact in the second half of the year.
(Source: Rystad Energy)
The loss of oil demand will result in a sizable reduction of global CO2 emissions in 2020. Since oil consumption represents about a third of the world’s CO2, the predicted 10% demand loss would yield an about 3% CO2 emission reduction for the year. If coal and natural gas demand decreases as well, which can be expected during the upcoming recession, global GHG emissions may be reduced by as much as 4%—a historically unprecedented decline.
This slump in energy consumption due to the Covid-19 pandemics, while most devastating to the global economy, is actually inline with the GHG emission reduction targets under the Paris Agreement, observed Jean-Marc Jancovici in a Linkedin post. In order to maintain the climate warming below 2°C, global GHG emissions must be reduced by 3-4% a year. This puts a rather interesting perspective on the ongoing discussion about decarbonization of the global economy.
One of the oil industry sectors that is most affected by the oil demand destruction are US shale operators, as the costs of fracking technology are higher than those of conventional oil production. As shut-ins, reductions in spending and activities weigh in, the fourth quarter of 2020, which was projected to see a year-on-year oil production increase of 650,000 barrels per day, is now instead forecast to see a reduction of 1.5 million bpd. For all of 2020, Rystad Energy expects production to decline to 9.5 million bpd, down around 4% from the 9.9 million bpd in 2019.
In total, all revised US shale producers combined have so far reported plans to slash 38% off their previously announced 2020 capital budgets, which implies a cut of nearly 42% compared to 2019 spending. And these figures are conservative estimates, Rystad noted.
Source: Rystad Energy