“That was the fear all along, that the virus would not be contained in China,” said Claudio Galimberti, head of demand, refining and agriculture at S&P Global Platts. “There are entire cities, and in some cases regions, that are in a lockdown. When you begin to have a lockdown, people work from home, factories shut down, people don’t travel. The impact on oil is very, very bad.”
The Financial Times reported that Saudi Arabia is pushing for deep cuts in oil production to help stabilize prices in the face of falling demand. The newspaper, citing people familiar with the talks, said the Saudis propose to bear most of the brunt of a cutback of 1 million barrels per day but want Russia and other big producers to join them. Representatives of OPEC and allies like Russia plan to meet next week.
When the coronavirus first hit, the Energy Information Administration predicted global oil demand would fall to 100.3 million barrels per day in the first quarter of 2020, down about 900,000 barrels, or 1%, from what was estimated in January. The agency said it expects global oil demand to rise by 1 million barrels per day in 2020, which is lower than its growth prediction last month of 1.3 million barrels per day this year.
The financial situation was deteriorating for the oil industry long before the coronavirus hit. Demand for oil was suppressed by ongoing trade tensions with China, concerns about climate change, growing adoption of renewable energy sources and steadily improving energy efficiency. In Texas, the number of active rigs fell from 553 in October 2018 to 398 in January 2020. Around the same time, the oil industry in Texas shed about 14,000 jobs, said Karr Ingham, executive vice-president at the Texas Alliance of Energy Producers, which has about 2,600 members.