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Whither Oil Prices?

It is impossible to say what will happen to oil prices as a result of the COVID-19 pandemic and global recession. But there are signs that, though demand will take time to recover, supply may be adjusted faster than during past crises.

MEXICO CITY – With oil prices at historic lows, many are desperate for some idea of what will happen next in energy markets. As a wise oil expert once advised me, we should never try to predict the future price. But we can shine a light on how the COVID-19 pandemic is affecting oil markets today, and what their prospects are.

Until a few weeks ago, the world was producing and consuming around 100 million barrels per day (b/d). But social-distancing rules and movement restrictions aimed at curbing COVID-19 infections have caused global oil demand to plummet. The US Energy Information Administration (EIA) forecasts that global liquid fuels consumption will average 92.6 million b/d in 2020, down 8.1 million b/d from 2019. In June, OPEC crude oil production could fall below 24.1 million b/d.

At the same time, countries’ oil inventories are at or near full capacity. Typically, OECD countries hold about a 60-day supply of crude oil. Today, they are holding an 85-day supply. The EIA expects that global oil inventories will grow this year at an average rate of 2.6 million b/d – the largest annual buildup in the 40 years the EIA has tracked international data. Simply put, the world is running out of space to store oil.

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