Friday, May 8, 2020
Release: IHS Markit
The second quarter of 2020 will see the largest volume of liquids production cuts, including shut-in production, in the history of the oil industry.
IHS Markit now expects much as 17 MMb/d total liquids output (which includes nearly 14 MMb/d of crude oil production) to be cut or shut-in during the period between April and June 2020.
“The Great Shut-In, a rapid and brutal adjustment of global oil supply to a lower level of demand is underway. All producing countries are subject to the same brutal market forces. Some will be impacted more than others. But there is nowhere to hide.” – Jim Burkhard, vice president and head of oil markets, IHS Markit.
IHS Markit expects oil demand in the second quarter of 2020 to be 22 MMb/d less than a year ago. This collapse in demand combined with low oil prices, storage constraints and government ordered cuts are driving what is an extraordinary level of liquids production cuts and shut-ins around the world.
North America and OPEC members, as well as countries in the Commonwealth of Independent States—particularly Russia—are expected to be the source of most of the production cuts.
Exactly where, why and how supply cuts will take place is a complex matter. There is no fixed equation. Oil is produced in a wide variety of environments, which means there is no fixed equation and decision factors vary.
However, IHS Markit has identified three key factors that shape production cut decisions:
“When it comes to the where, why and how of production cuts, the wide range of technical, logistical, regulatory, contractual, and financial conditions means there is no single set of answers. But under these market conditions, it is pretty clear where production will be cut. Nearly everywhere.” – Paul Markwell, vice president, global upstream oil and gas, IHS Markit.