World oil demand is expected to drop by the largest volume in history in the first quarter of 2020, and deteriorating economic conditions could lead to the most extreme global oil supply surplus ever recorded.
If the oil price war continues amidst the coronavirus crisis and a global recession, the surplus could range from 800 million to 1.3 billion barrels in the first half of 2020, according to data from IHS Markit Ltd.
The previous largest six-month global surplus was a cumulative 360 million barrels in late 2015 to early 2016, according to the London-based firm.
Counting barrels is difficult under normal circumstances, but the looming imbalance between demand and supply is so vast, based on the current trajectory, it belies typical margins of error, according to Jim Burkhard, IHS Markit vice president and head of oil markets.
Much like the coronavirus, the decline in demand for oil is spreading across the globe, grounding planes, halting school and work commutes, idling manufacturing plants and canceling entertainment events.
There is no March Madness, the NCAA's collegiate championship tournament for basketball, this year. There are no spring break vacations. And for the manufacturing industry, there are no trade shows or big gatherings.
Attempts to contain COVID-19 have slowed travel and led to unparalleled stoppages of economic activity with millions around the globe "sheltering in place" at home to slow the spread by social distancing.
"There has been a dizzying drop in world oil demand and a dramatic pivot in Saudi oil production policy. If this situation persists amidst a recession, it points to the possible buildup of the most extreme global oil supply surplus ever recorded," Burkhard said March 16.
Rubber and polymer companies that serve the underground and underwater oil and gas industry could feel the pain of lower demand for seals, gaskets and other parts for drilling motors, oil platform systems, sub-sea valves and refinery equipment.
Automotive suppliers also will feel the pinch.
New vehicle sales could plummet by as many as 2.4 million units compared to 2019 because of the pandemic's impacts on vehicle inventory and consumer confidence, according to research released March 16 by Santa Monica, Calif.-based ALG, a subsidiary of True Car Inc., which offers market insights and residual value forecasts.
"A quick recovery by the end of April would lead to roughly half a million lost sales, while a prolonged slowdown through the end of the year would result in a nearly 15 percent year-over-year sales decline in 2020," Eric Lyman, ALG's chief industry analyst, said in a statement.
Forecasts are changing day-to-day, he added, offering a current likely scenario for 2020 new vehicle sales in the mid-15 million unit range.
The oil surplus in the first quarter of 2020 will be at least 4 million barrels a day over last year, IHS Markit said, and could be more than double that by March and April.
The possible surplus of 800 million to 1.3 billion barrels in the first six months of 2020 factors into the impacts of increasing travel restrictions, reduced commuting and the likelihood of a severe global slowdown extending into the second quarter.
"The last time that there was a global surplus of this magnitude was never. Prior to this, the largest six-month global surplus this century was 360 million barrels. What is coming will be twice that or more," Burkhard said.
World oil demand in the first quarter will be at least 4 million barrels a day below the prior year. The largest impact on production in 2020-21 will be felt in the U.S., where IHS Markit said crude oil production could drop by 2 million to 4 million barrels per day over 18 months.
There also are questions about whether oil production and supply chains will be affected by a lack of workers in key production areas around the world, according to IHS Markit.