Processing towers stand at the RN-Tuapsinsky refinery, operated by Rosneft Oil Co., in Tuapse, Russia, on Monday, March 23, 2020.
Andrey Rudakov | Bloomberg | Getty Images
The oil market is facing a “double crisis” with a collapse in the OPEC+ alliance affecting supply and the slowdown in the global economy crushing demand, oil guru Dan Yergin said this week.
“The breakdown of OPEC+ is only part of the picture,” the vice chairman of IHS Markit told CNBC’s “Capital Connection” on Monday. “The big thing is the coronavirus and the showdown of much of the world economy.”
Infections around the world have now crossed 700,000, according to data compiled by the Johns Hopkins University. Nearly 34,000 people have died from COVID-19.
Countries have implemented travel bans and instituted lockdowns to stem the spread of the virus.
“Cars not on the road, airplanes not in the air, factories not working, people not going to work,” Yergin said. “We see, in this month of April that’s coming, what could be a 20 million barrel a day decline in oil demand.”
“It’s unprecedented. That’s six times larger than the biggest downturn during the financial crisis period (in 2008),” he added.
World oil demand in 2019 stood at around 99.67 million barrels a day, according to OPEC’s estimate.
While demand is set to fall, major producers such as Saudi Arabia and Russia have announced they will increase supply in April after the OPEC+ agreement expires at the end of March.
“This is what people are now looking at … where are you going to put all of the oil?” he asked. When oil storage runs out, prices could fall further, he added. “I think the prices that we’re seeing, that you’re talking about today are really precursors … April is going to be a very difficult month.”
Crude futures have fallen well over 60% since the beginning of the year. On Monday afternoon in Asia, Brent was trading down 7.90% at $22.96 a barrel, while West Texas Intermediate had fallen 5.35% to $20.36 a barrel.
Yergin also said any possible solution to the oil price war is likely to come through the G-20, which includes other oil-producing countries. He noted that while the U.S. and Saudi Arabia have a good relationship, Washington and Moscow don’t have many platforms to talk.
“It may be that the G-20 provides an avenue to find a resolution here and help stabilize the industry in what is going to be a very difficult period as long as the pandemic continues.”