“A pick-up in demand and a massive drop in supply is paving the way for an oil market road to recovery.”
- To the collective benefit of producers, consumers, and the global economy, oil market fundamentals are improving.
- OPEC+ is cutting at an unprecedented level and some non-OPEC+ countries are providing autonomous support in response to the calls of the G20.
- Moving forward, demand will remain by far the biggest variable with so much depending on the path to recovery from the pandemic.
- For now, demand losses are subsiding, with global economic activity restarting as the COVID-19 infection curve flattens out.
- The KAPSARC Oil Market Outlook (KOMO) model sees global inventories peaking this quarter and beginning to fall in Q3 2020 and throughout 2021.
The King Abdullah Petroleum Studies and Research Center (KAPSARC) published its latest Instant Insight in which it provides a breakdown of the improving picture in the oil market and the current expected path to recovery as seen through the research center’s KOMO model.
The paper, entitled “Oil’s Demanding Road to Recovery,” rejects the argument seen in some parts of the media that certain countries are ‘winning’ in the current oil market crisis. It highlights that all producers are suffering from the demand collapse and that consumers, who can barely take advantage of the short-term gains offered by lower prices, “…will face the negative effects of volatile oil prices in the longer term if the market does not return to order.”
The paper also disposes of the theory that the ‘oil price war’ caused the massive supply/demand imbalance and the subsequent price collapse. It outlines that the crisis was always really driven by demand dynamics, stating that the “added supply for April due to the unsuccessful OPEC+ meeting was no more than 3 MMb/d,” while, “global oil demand for the same period was down 29 MMb/d.”
The report concludes that “with a gradual recovery in demand expected, and growing reductions in supply, prices will eventually increase when inventories start to draw down, which KOMO sees happening in the second half of 2020.” However, the study also warns that demand will remain by far the biggest variable moving forward, with the recovery depending heavily on “how quickly containment measures are lifted, whether a second wave of the virus develops, and the depth and duration of the economic downturn.”
KAPSARC’s research continues in the face of global current events. Earlier in February, the center announced that it had jumped 14 positions to place 15th in the MENA category according to the University of Pennsylvania 2019 Global Go To Think Tank Index Report. The center has also climbed up four places in the Energy and Resources Policy category, where now it ranks 13th globally.