Fitch lowers oil price forecast on COVID-19, oversupply

ANKARA

The Fitch Ratings agency lowered its oil price forecast for 2020 and 2021 Thursday because of the spread of the coronavirus and growing crude oversupply.

The rapid spread of the virus has weakened the global economic outlook and oil demand in the short-term, resulting in "very large oversupply," said the global rating agency.

"The oil market is under pressure from both shrinking demand and growing supply. Much lower economic activity due to the unprecedented lockdowns in much of Europe, the U.S. and many other countries is significantly reducing oil consumption," it said.

"We expect demand to fall by several million barrels per day in 2020 compared with 2019. Jet fuel and gasoline, which represent 35% of global oil consumption, will be most affected by the lockdown.”

Fitch said OPEC+ countries failing to agree on oil production cuts means OPEC members have removed previous output quotas from April onward, which will result in increasing supply.

"Saudi Arabia, which has spare capacity of at least two million barrels per day (bpd), intends to maximize production. We estimate that overall OPEC production could grow by about 3 million bpd in the short term," it said.

The rating agency now expects the price of Brent crude to average $35 per barrel this year, down from its previous estimate of $41. The international benchmark is forecast to average $45 l in 2021, down from the previous estimate of $48.

American benchmark West Texas Intermediate (WTI) is anticipated to average $32 in 2020, down from $38, and it is forecast to average $42 next year, down from $45.