Morgan Stanley Lowers 2020 Oil Demand Growth Outlook as Coronavirus Spreads

Morgan Stanley said on Tuesday it has lowered its oil demand growth forecast for this year, citing slowing demand for crude in China and outside China amid the rapid spread of the coronavirus epidemic.

“We now expect China’s oil demand growth in 2020 to be close to zero, from already low pre-Covid-19 growth expectations of 350 kb/d,” the bank said in a note. “As Covid-19 has been spreading globally, demand outside China is likely to slow further.”

Morgan Stanley cut its 2020 oil demand growth outlook to 500,000 barrels per day (bpd) from 800,000 bpd. It lowered its second-quarter 2020 Brent price forecast to US$55 per barrel from US$57.5 and cut its U.S. West Texas Intermediate outlook to US$50 from US$52.5.

“At the upcoming meeting on Thursday and Friday, we expect that Organization of the Petroleum Exporting Countries (OPEC) and partners will announce a headline cut of about 1 million barrels per day for H1, and extend the existing quota until the end of 2020,” the analysts said. “Still, this leaves oil markets modestly oversupplied in 2020 and Brent in the US$50s.”

Oil has shed nearly 30% from January highs. U.S. crude dropped below US$50 a barrel after the virus hit demand in China, the world’s top oil importer, and sparked concerns about excess global supply.

On Tuesday, the U.S. Federal Reserve surprised investors with a half percentage-point cut in interest rates, amplifying fears about the magnitude of the coronavirus’ impact on the economy.

Barclays in January had flagged risks to oil demand growth and prices due to the epidemic. Barclays said it saw a US$2 per barrel downside to the bank’s full-year Brent and U.S. West Texas Intermediate forecasts as virus fears threaten demand.