Oil market fundamentals have reached "horrifying" levels following the spread of the coronavirus pandemic, with global storage capacity expected to be exhausted by May, Opec's secretary-general told ministers at an emergency meeting on Thursday.
"The supply and demand fundamentals are horrifying; the expected excess supply volumes on the market, particularly in the [second quarter of 2020], are beyond anything we have seen before, " Mohammed Barkindo said in his opening remarks at a virtual conference of Opec and non-Opec producers.
"Our industry is hemorrhaging; no-one has been able to stem the bleeding. We are already seeing some productions shut-ins, companies filing for bankruptcy and tens of thousands of jobs are being lost, " he added.
Opec+, which counts Saudi Arabia and Russia as key members, is meeting virtually after being nudged by the US to set aside differences and consider steeper production cuts to balance the markets. Riyadh and Moscow blamed each other for the collapse of talks in March when the kingdom urged early action to respond to the steep demand decline from the widespread lockdowns implemented to contain the outbreak.
Brent futures gained 11 per cent in the days preceding the meeting as speculation mounted that producers were pushing for 20m bpd of cuts. Mr Trump had advocated for producers to roll back output by 10m bpd to 15m bpd.
Oil remained steady as the meeting got underway, though, with Brent up 2.44 per cent at $33.64 at 9.04pm UAE time, while West Texas Intermediate was up 1.83 per cent at $25.55 per barrel.
Mr Barkindo noted that assessments of the level of demand contraction had changed vastly since the March meeting. Oil demand is expected to contract by 6.8m bpd in 2020 as opposed to an earlier forecast of a tepid increase of 100,000 bpd.
Demand for the second quarter alone is expected to contract by 12m bpd, he added. London-based FGE expects a 24m bpd decline in April alone, while Swiss bank UBS expects a fall of 20m bpd during the current quarter.
Mr Barkindo called the demand decline "staggering" and "unprecedented in modern times".
Opec also expressed caution about available oil storage capacity. The group estimates available storage capacity worldwide at a billion barrels, but that was "quickly filling up", said Mr Barkindo.
"Given the current unprecedented supply and demand imbalance there could be a colossal excess volume of 14.7m bpd in the [second quarter], " he said.
The oversupply would add a further 1.3 billion barrels to global oil stocks, thereby exhausting available global crude storage capacity by May, he said.
He called on producers to shoulder action to prevent layoffs and investment declines in the energy industry.
"For the current quarter, around 15 per cent of global oil consumption has evaporated and this huge market imbalance needs to be urgently addressed," said Mr Barkindo.