Nigeria's foremost Online Energy News Platform

OPEC projects severe global economic downturn of 3.4% GDP

*Says world oil demand to decline by nearly 9.1 mb/d this year

Analysts at the OPEC Secretariat expect a severe global economic downturn this year, with the economy contracting by 3.4% compared to global Gross Domestic Product, GDP growth of 2.9% in 2019.

This was contained in Mohammad Sanusi Barkindo, OPEC Secretary General’s speech at the webinar on ‘Energy Issues in the post-COVID-19 World’, Azerbaijan Center of Analysis of International Relations (AIR Center), held via videoconference last week.

The most recent forecasts from the World Bank had revealed an even more pessimistic GDP growth outlook of minus-5.2%, while the OECD just released their forecast (June 10th) showing minus-6.0% growth for 2020. These downside revisions merely reflect the high risks and associated uncertainties.

In another breathe, OPEC said it projects a historic decline in world oil demand of nearly 9.1 mb/d this year, to around 90.6 mb/d.

Before COVID-19, the group expected world oil demand to top 100 mb/d in 2020, up by 1.08 mb/d from 2019.

Barkindo said investment is another significant concern to OPEC as it navigates through the rest of this year.

“Our projections show CAPEX in non-OPEC countries plummeting by 23% in 2020, to about half the $741 billion records set in 2014. Energy is among the key commodities most affected by the pandemic-induced slump”.

“As we know from the oil market’s sharp downturn in 2014-2016, unpredictable investment flows have severe long-term consequences for the industry. It takes years to reverse the damage caused by the loss of highly skilled jobs and technological know-how, along with setbacks in exploration and production”.

“I can speak for OPEC Member Countries in pointing out that sudden dips in revenue and unpredictable investment make it a herculean task to finance economic and energy diversification, which are so important to current and future development. These uncertainties also affect current operating budgets at a time when additional support is needed to strengthen health systems and stimulate economic activity”.

Barkindo said the road ahead is “cluttered with many uncertainties for the economy and the energy markets”.

Yet despite the many downside risks, OPEC already sees evidence of reduced volatility in the oil market.

“The prices on both Brent and WTI have now bounced back to the levels we saw before lockdown measures were enacted around the world, with both benchmarks now oscillating around $40/b”.

“I believe a large part of the stabilisation we have seen over the past few weeks can be attributed to two interconnected factors: the unparalleled actions undertaken by the countries in the ‘Declaration of Cooperation’ to arrest the market collapse and restore order; and the unprecedented support we have received in the process”, Barkindo said.

In a series of marathon virtual meetings between April 9th and 12th, the DoC participants agreed to undertake the largest oil production adjustments in history. The resulting adjustments of 9.7 mb/d for May and June, followed by tapered adjustments until the end of April 2022, were designed to halt the market’s dramatic slide and provide a platform for stabilisation, recovery, and growth.