"Prolonged Low Oil Prices in 2020 Due to COVID-19... Worst Case $34"

Energy Economics Institute Releases 'International Oil Price Trends and Outlook' Report
Four Scenarios for Oil Demand Recovery Timing Based on OPEC+ Production Cuts

[Image source=Yonhap News]

[Asia Economy Reporter Kim Bo-kyung] An analysis has emerged suggesting that the low oil price situation could be prolonged due to economic contraction caused by the novel coronavirus infection (COVID-19).

According to the 'International Oil Price Trends and Outlook' report released by the Korea Energy Economics Institute on the 15th, the price of Dubai crude oil fell from $64 per barrel in January to $54 in February, and dropped further to $33 as of March 12.

The report explained, "The sharp decline in oil demand due to the spread of COVID-19 and the failure of OPEC+ (the Organization of the Petroleum Exporting Countries and the alliance of 10 major oil-producing countries) to agree on additional production cuts were the main factors driving oil prices down."

As COVID-19 spreads this year, industrial activity slows and cross-border movement is restricted, leading to a steep decline in oil demand, especially for jet fuel, diesel, and gasoline.

On the other hand, supply is expected to continue increasing. Due to the failure of OPEC+ to agree on additional production cuts, 11 OPEC countries including Saudi Arabia will begin increasing production after the second quarter. Oil production in these regions is expected to increase by more than 1 million barrels per day compared to the January-February 2020 performance.

Along with increased U.S. shale oil production, supply from non-OPEC regions such as Norway, Brazil, and Guyana is also expected to steadily increase due to the operation of new oil fields.

The Korea Energy Economics Institute set four scenarios for this year's international oil price outlook depending on the timing of oil demand recovery due to the spread of COVID-19 and whether the OPEC+ production cut cooperation system is restored.

First, if global oil demand recovers from the third quarter and the OPEC+ production cut system collapses, leading to increased crude oil production, the average annual Dubai crude oil price this year is expected to remain at $42 per barrel, a sharp decline from last year's $63.53 per barrel.

Assuming that OPEC+ restores the cooperation system and maintains the existing production cuts, if oil demand normalizes from the second quarter, the average annual Dubai crude oil price is estimated at $48 per barrel, and if normalization occurs from the third quarter, it is estimated at $54 per barrel.

In the worst-case scenario where Libya's crude oil production also recovers under the first scenario, the average annual oil price is projected to drop to as low as $34 per barrel. At this time, the Dubai crude oil price in the second quarter is predicted to be $24 per barrel.

Meanwhile, the International Energy Agency (IEA) in its January report expected global oil demand in the first quarter of this year to increase by 800,000 barrels per day compared to the same period last year, but in its March report, it revised the forecast downward to a decrease of 2.49 million barrels per day.

This content was produced with the assistance of AI translation services.