IHS Markit expects as much as 10 million barrels a day of world oil production to be cut or shut-in from April through June as storage fills up and demand craters due to the Covid-19 pandemic.
Output is projected to fall in every region of the world, with OPEC members, Russia, and the U.S. among the hardest hit, the consultancy said in a note. Oil demand in the second quarter is expected to decline by 16.4 million barrels a day compared with the same period last year.
The collapse in demand has shut refineries from South Africa to Canada, leading to excess barrels in the market. It also comes as Saudi Arabia and Russia have boosted production in a bid to gain market share, adding to the surplus.
IHS Markit sees the volume of shut-in production easing around mid-year. The consultancy still expects that the price of Brent futures will fall to around $10 a barrel in April and some producers will experience negative prices, where they pay the buyer to take the crude.
Assuming global demand returns next year, Saudi Arabia and Russia will be better positioned to maintain or even increase production compared to the U.S. By the fourth quarter of 2021, U.S. production will have fallen to 8.8 million barrels a day, about two thirds of what it was in the first quarter of this year. At the same time, IHS expects Saudi Arabia’s output to be higher.