Oil demand drops up to 20%, making price war a sideshow

Bloomberg

Oil demand is plummeting — some traders say by 10 to 20 million barrels a day, or a fifth of global consumption — as millions find themselves in lock-down or self-isolating, causing travel to grind to a halt.
“Demand has been decimated in short term,” said Andy Hall, one of the most successful oil traders of his generation until he retired from day-to-day trading in 2017. It’s a widely held view among senior executives in the market.
Since dropping below $25 a barrel this week, an 18-year low, Brent crude has swung violently, with investors trying to assess the impact of Opec+ output increases against falling demand due to measures to contain Covid-19. On four occasions in the past two weeks, Brent posted daily price swings of more than 10%.
Taking a snapshot of how much oil consumption is collapsing is impossible, but privately traders put the drop somewhere between 10 million and 20 million barrels a day, with some saying it may be falling even more. California alone, where authorities have just mandated a lock-down, accounts for 10% of US total oil demand, and a huge 20% of jet-fuel consumption.
Even if demand recovers to normal levels by the middle of the year, 2020 is still on course to suffer the biggest decline in oil consumption since reliable records started in the mid-1960s. Until now, the biggest annual contraction was recorded in 1980, when it tumbled by 2.6 million barrels a day as the global economy reeled under the impact of the second oil crisis.
The drop in demand is a moving target as countries step up their measures to contain the pandemic. FGE, an oil consultant that was among the first to recognise the severity of the problem, warned clients in a note that 2020 average demand could plummet by 12 million to 20 million barrels a day in its worse-case scenario.
Even a smaller contraction would far outstrip any production cuts that the Opec+ alliance discussed two weeks ago.
Output cuts “wouldn’t prevent an unprecedented inventory build over the next months,” said Damien Courvalin, an oil analyst at Goldman Sachs Group Inc., adding that oil prices are still likely to drop towards levels that force some producers to shut down their wells.