Last updateFri, 03 Jul 2020 5pm

U.S. Oil Output Curbs to Triple in May, June

The global imbalance between oil supply and demand, which has built to 26.4 million barrels per day (bpd) in April due to the COVID-19 pandemic, is set to halve to 13.6 million bpd in May and fall further to just 6.1 million bpd, according to a Rystad Energy analysis. However, despite the improvement, the stock build will still overwhelm remaining global storage, which will fill in weeks.

Global supply is expected to fall in May to 92.8 million bpd, from 98.3 million bpd in April, and further decline to 91.1 million bpd in June. We expect June to see the lowest supply level this year unless further production cuts are announced, with output rebounding from July.

Demand on the other hand, which Rystad Energy estimates will reach its lowest point at 71.8 million bpd in April, will rise to 79.2 million bpd in May and to 85.1 million bpd in June, as governments ease COVID-19-related restrictions and some industrial activity resumes.

API Report Shows Impact of COVID-19 on Energy Markets

U.S. petroleum demand declined to 19.4 million barrels per day (mb/d) in March, which was a 4.6% decrease from February, according to data released from the American Petroleum Institute’s March 2020 Monthly Statistical Report, which is based on surveys of 90% of the industry. Measures to slow the spread of the coronavirus drove gasoline and jet fuel demand lower, but were partially offset by higher diesel fuel deliveries with increased freight transportation.

"Current data through March, based on API’s surveys of the industry, highlight the deep energy market effects of the ongoing public health crisis, but also provide timely and statistically valid estimates in a period of tremendous uncertainty," API chief economist Dean Foreman said. "As demand decelerated over the latter half of the month, total U.S. petroleum demand decreased by 934,000 barrels per day, which is a large decease but provides a relatively stronger point of departure than many third-parties have projected. Importantly, we saw a monthly downturn in U.S. crude oil production, which shows the market is responding appropriately. Our primary focus now should be on addressing this virus, so that we can restore public health and the economy, with energy as a key enabler."

U.S. Petroleum Consumption Lowest in Decades

U.S. consumption of petroleum products has fallen to its lowest level in decades because of measures that limit travel and because of the general economic slowdown induced by mitigation efforts for the coronavirus disease 2019 (COVID-19). The U.S. Energy Information Administration (EIA) estimates the decline in petroleum product demand by examining the changes in total product supplied, EIA’s proxy for consumption. As outlined in EIA’s Weekly Petroleum Status Report, published yesterday, total petroleum demand averaged 14.1 million barrels per day (b/d) in the week ending April 17, up slightly from 13.8 million b/d in the previous week—the lowest level in EIA’s weekly data series, which dates back to the early 1990s. The most recent value is 31% lower than the 2020 average from January through March 13, or before many of the travel restrictions began.

Chemical Industry Outlook Uncertain Due to COVID-19

The American Chemistry Council (ACC) released an abbreviated, interim update to its Chemical Industry Situation and Outlook. The update offers two scenarios intended to capture a range of potential trajectories for the global and U.S. economies and the chemical industry.

According to the update, U.S. chemical volumes are expected to fall 3.3% in 2020 before rising 5.2% in 2021. Basic chemical volumes will drop 2.9% in 2020 before rising 6.7% next year. Chemical shipments are expected to fall 10.0% in 2020 before rebounding by 7.8% in 2021. Anticipated declines reflect struggling end-use markets and export customers for U.S. chemistry products.

Partially offsetting weakness in U.S. chemical production is strengthening demand for chemistry used in the response to COVID-19. Among the many chemistry solutions used in the fight against the virus are synthetic materials for personal protective equipment (PPE), ingredients for cleaners and disinfectants, and plastics used in medical equipment such as ventilator machines and IV bags.

IEA: Expect Global Refining Throughput Decline

Refining throughput in 2020 is forecast to fall 7.6 million b/d year-over-year to 74.3 million b/d on sharply reduced demand for fuels, according to the International Energy Agency (IEA). Global refinery intake is expected to plummet by 16 million b/d y-o-y in the second quarter of 2020, with widespread run cuts and shutdowns in all regions. Although refinery runs are falling, product stocks are still expected to build by 6 million b/d. In the second half of 2020, refining activity will slowly recover as the global market moves into deficit.

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