The biggest demand shock hitting the crude oil market since 2008 is driving a continued reduction in the outlook for demand going forward. Yesterday Goldman Sachs became the first of the major Wall Street Banks to forecast a slump in 2020 global oil demand. The contraction by 150,000 barrels/day will, if realized, only be the fourth time in 40 years it happens. The previous two occurred during the global financial crisis years in 2008 and 2009.
These developments highlight our continued belief that the behavior of safe-haven metals such as gold and pro-cyclical commodities such as energy, which depends on growth and demand, remain much better guides than the stock market.
While copper derives half of its demand from China, the energy sector reflects development across the global economy. The spreading of the coronavirus from China is posing an increased threat to global growth and fuel demand has taken a hit as companies ban travel and supply chains are disrupted.
Some major downgrades are now expected from OPEC, IEA and EIA in their upcoming monthly reports for March. Up until January, before the virus became known, they expected global demand growth in the region of 1.2 million barrels/day. On that basis and given the expected 2.3 million barrels/day growth in non-OPEC supply the OPEC+ group of producers made the early December decision to cut production to balance the market.