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The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas on Nov. 22, 2019.

ANGUS MORDANT/Reuters

Traders and analysts are struggling to revise down their forecasts for oil demand fast enough, as government lockdowns to contain the coronavirus outbreak have rapidly cut fuel consumption.

At the start of the year, forecasters had expected demand to edge up or stay flat. But, in the space of a few months or even weeks, the most bearish outlooks seem hopelessly out of date.

“Demand destruction this year depends on how many countries follow an Italian-style lockdown,” said Giovanni Serio, head of research at Vitol, the world’s biggest oil trader.

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“If you extrapolate to the rest of Europe and particularly the United States, then you can get as bearish as you like.”

Based on widespread lockdowns in Europe but more limited U.S. measures, Mr. Serio sees demand falling by more than 10 million barrels a day (bpd), which is equivalent to 10 per cent of daily global consumption of crude of about 100 million bpd.

IHS Markit and Standard Chartered bank have also predicted demand could drop by as much 10 million bpd by April.

But many analysts are wary of extending predictions for daily demand beyond a few weeks, given the uncertainty about how long the virus will take to contain and the full extent of its economic impact with government policy shifting by the day.

The authorities in the United States, the world’s biggest economy, have been ratcheting up measures to stop the virus spreading. California told its 40 million residents on Thursday to stay at home. U.S. restrictions on travel across the Mexican border could follow, adding pressure on fuel demand.

“This is the most dismal oil demand picture we have witnessed in a long time with a simultaneous collapse in jet fuel, gasoline, shipping fuel, petrochemicals and oil used for power generation,” Rystad Energy analyst Louise Dickson said.

But, even forecasts made less than two weeks ago now seem outdated.

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The U.S. Energy Information Administration (EIA) said on March 11 it saw demand rising by a modest 370,000 bpd in 2020, while the International Energy Agency (IEA) flagged a small 90,000 bpd contraction on March 9.

In a report on March 17, Standard Chartered said it expected average demand in 2020 to fall by 3.39 million bpd, which would be a new record, exceeding the 1980 drop of 2.71 million bpd in terms of barrels, although not as a percentage of total demand.

“Economic growth and oil demand will weaken further before they recover, which can only happen once social distancing measures are lifted,” said Amrita Sen, chief oil analyst at Energy Aspects.

FLOOD OF SUPPLY

Typically, tumbling oil prices help push demand back up. But even a slide in benchmark Brent, which has halved in value in two weeks to trade below US$30 a barrel, is unlikely to stimulate appetite amid industry shutdowns.

Ms. Sen said Brent could dive to $10, a level last seen two decades ago, owing to sliding demand and record supply from Saudi Arabia, which has been chasing market share after a deal between OPEC and Russia on curbing supplies collapsed this month.

If Saudi Arabia maintains “that pace, the only near term floor on oil price is zero,” said Jason Gammel at Jefferies.

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The deal between the Organization of the Petroleum Exporting Countries, Russia and others, a group known as OPEC+, fell apart over how best to respond to the coronavirus, with Riyadh and OPEC seeking deeper production curbs, while Moscow resisted.

But promises of extra crude from Saudi Arabia, which has said it will add more than 2 million bpd to the market, and from other producers still look like modest additions when compared with the scale of the drop in demand.

“The market must remember that the tsunami of demand losses from the coronavirus will likely be four to five times as large in the second quarter than the flood of oil coming from OPEC+ producers,” said Rystad Energy’s head of oil markets Bjornar Tonhaugen.

Goldman Sachs, which on March 18 predicted global demand dropping by 1.1 million bpd in 2020, cut its second-quarter Brent forecast to US$20.

Bank of America Global Research saw it falling below US$20.

“The current prices will inflict severe pain on high-cost oil producers and quite a few of them will go bankrupt,” said Tamas Varga, oil analyst at London brokerage PVM Oil.

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Jim Burkhard, vice-president and head of oil markets at IHS Markit, added: “If this situation persists amidst a recession, it points to the possible buildup of the most extreme global oil supply surplus ever recorded.”

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