Goldman Sachs latest energy note adds to the already substantial pile of evidence that industrial energy demand is continuing to plummet. From Chinese diesel demand to Italian car registrations, the figures are unremittingly bleak.
They note that Opec compliance is 61%, compared to 40% the previous month. But that’s not enough:
In particular, we maintain that an additional 1.1 million b/d of production needs to be removed from the market from anuary’s levels to curb the current market surplus and prevent a continued stock build in the next 2 months. We expect that a further 500 kb/d production cut will likely come from OPEC producers, bringing their compliance rate to 75%, but 600 kb/d will likely have to come from non-OPEC producers (see Exhibit 11). As a consequence, we continue to expect that prices will have to remain under pressure in the near term to force marginal non-OPEC producers to cut supply and help rebalance the market. However, should OPEC implement an additional 1.1 million b/d cut, and/or weather related demand strength become more dominant, the need for non-OPEC production cuts and related downward price pressure would diminish.