Will this glut dry up anytime soon?

How deep has the drop in oil demand been so far? How much deeper can it sink? When and how fast is it expected to recover? Bloomberg quotes various authorities on this:

“This global pandemic is something the world hasn’t witnessed since 1918,” said Pierre Andurand, who runs oil hedge fund Andurand Capital Management LLP. “I do not see how the the demand drop wouldn’t be multiples of the drop witnessed during the global financial crisis.” …

Andurand estimates that demand could easily drop by 10 million barrels a day in this quarter and even beyond.

That’s roughly 10% of the pre-crisis demand and more than Saudi Arabia’s average crude production in February. It’s also close to 90% of Russian crude output in February. Roughly speaking (and boldly assuming no surplus in the market prior to the pandemic), if Saudi Arabia suddenly stopped producing, it would balance the market; if Russia did the same, global inventories would start falling at a rate above 1 mmbpd. If Andurand’s estimate is correct, that is.

Trafigura, among the world’s top-three independent oil traders, is publicly the most bearish about demand, saying that consumption could soon be contracting by close to 10 million barrels a day, or 10% of global demand, with perhaps more to come. Its forecast is for a relatively short period of time, rather than a quarterly or an annual forecast.

The big question remains unanswered: when will demand recover, if ever? What if it remains several million barrels per day below last year’s levels?

In this scenario, if President Trump became convinced that oil prices needed propping up, he could use his sanctioning power, say, against Russian exporters. In the long run, the Kremlin is seeking to grow Russia’s market share to make it sanction-proof. In the short run, however, Russia has just made itself more vulnerable to such measures. At this point they seem a purely theoretical possibility but can’t be ruled out with perfect confidence.

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