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Oil Market Snapshot – February 2020 COVID-19 Rattles Markets, As Russia and Saudi Are Split on OPEC+ Response

  • Brent has collapsed to $50/bbl on 28th February, after a brief bounce at $55/bbl, as fears of weaker demand grip global markets due to the coronavirus outbreak.
  • We see Brent averaging $63.66/bbl in 2020 and $64.53/bbl in 2021 (-$2.21 and -$2.11 on previous, respectively) if the virus is contained and China recovers swiftly.
  • Incorporating the current futures strip, Brent may average $58/bbl, though there is significant risk on both sides to this number, as it is unclear whether the virus will be contained or grow into a pandemic.
  • Our global demand growth forecast for 2020 is trimmed to 940,000 b/d (-280,000 b/d on previous) on expectations of weaker GDP growth in 1Q and 2Q20 due to containment efforts targeting the virus.
  • Our global supply growth forecast for 2020 is 910,000 b/d in 2020 (-370,000 b/d on previous), with Libya’s production cut by 1 million b/d and OPEC+ mulling further cuts.
  • Majors expect to spend around 2% more on capex in 2020 y-o-y, and profits took a dip in 4Q2019.
  • OPEC+’s Joint Technical Committee has called for 600,000 b/d of further cuts in 2Q2020, followed by the existing targets being extended to YE2020, though members are now considering 1 million b/d.
  • This remains politically difficult, with Saudi Arabia keen to enforce further cuts while Russia is less enthusiastic, while also of questionable efficiency given the price decline is demand-led
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