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Commodities

OPEC predicts a deeper drop in global oil demand, based on serious coronavirus challenges

The world’s bloated oil inventories will subside more slowly than previously thought.

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OPEC+ output cut: The oil cartel records 86% compliance as Nigeria beats expectation, OPEC predicts a deeper drop in global oil demand on serious coronavirus challenges

The Organization of Petroleum Exporting Countries (OPEC) forecasts that global oil demand will fall deeper in 2020 than was previously predicted, due to the coronavirus pandemic, and recovery being slower than expected next year.

This is coming after signs of a recovery in supply from US shale drillers, and a few days before the scheduled meeting of OPEC ministers.

This new outlook raises questions about the group’s decision to ease production cuts last month, which the cartel had been implementing as part of measures to boost the coronavirus-hit oil market.

READ: Oil prices hit 2-months high as Bonny light rises to $33.9/barrel over vaccine test optimism

OPEC added 760,000 barrels a day to the global oil market in August, just as its analysts were making a downward revision of demand for its crude by more than 1 million bpd.

OPEC and its allies are expected to hold an online monitoring meeting on Thursday, to assess whether the huge output cuts being implemented are still sufficient to stave off an oil glut, as the resurgence of coronavirus is hitting the global economy hard.

OPEC had also cut its demand forecast for 2021, and sees consumption rising by 6.62 million bpd, which is 370,000 bpd less than expected last month.

(READ MORE: Why are oil prices down despite a successful OPEC meeting?)

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Sigma Pensions

Oil prices slumped further below $40 per barrel on Monday, close to their lowest in over 2 months, as some oil firms like British Petroleum Plc, and Trafigura Group made worrying predictions about consumption.

Crude oil prices record gains after tropical storm hit Gulf of Mexico, The world's biggest oil hedge program underway, crude oil, Nigeria's Crude oil, Bonny light crude oil crashes as Nigeria runs into deeper revenue crisisBonny light crude oil crashes as Nigeria runs into deeper revenue crisis, Brent crude futures gained 0.92%, at $36.08 per barrel, while the U.S. West Texas Intermediate (WTI) crude futures also gained 0.54%, at $33.67 a barrel, Crude oil prices hit $40 per barrel as inventory build-up declines, EIA increases Brent price projection by $2.50 for 2020, OPEC predicts a deeper drop in global oil demand on serious coronavirus challenges

OPEC and its allies, which include Saudi Arabia and non-members like Russia, had agreed to ease some of the output cuts, made at the height of the negative impact of the coronavirus pandemic on the oil market. This month’s report from OPEC’s secretariat in Vienna suggests that the move might have been premature.

OPEC had cut back on its global oil demand forecast, for each quarter to the end of next year, by an average of 768,000 bpd. This will lead to a collapse by an unprecedented 9.46 million bpd in 2020, averaging 90.23 million bpd.

READ: Global stocks plunge over doubts of America’s economic recovery

Stanbic 728 x 90

The group simultaneously raised projections for production outside OPEC over the next 5 quarters, by an average of 394,000 bpd, mostly due to a stronger outlook for the U.S.

The combination of softer consumption forecasts and more robust non-OPEC supply numbers, depresses the requirement for crude from the cartel. The organization reviewed downwards, the estimated demand for its crude next year by 1.1 million bpd to 28.2 million bpd.

READ: Yearn.finance: Buyers earn 125,322% profits  

While OPEC is producing far below this level because of its agreement to curb supply, the revision indicates that the world’s bloated oil inventories will subside more slowly than previously envisaged.

Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

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Commodities

Oil prices stay on course as Saudi’s Energy Minister reassures traders

British based oil contract traded at about $63 a barrel while the WTI futures were trading slightly below the $60 price level.

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Crude oil prices slump, as partial lockdowns resume

Crude oil prices remained relatively firm at the early hours of Friday’s trading session as oil traders digested Saudi Arabia’s defense of OPEC+ plans in raising output thereby capping gains.

At press time, the British based oil contract traded at about $63 a barrel while the West Texas Intermediate futures were trading slightly below the $60 price level.

Saudi energy minister Prince Abdulaziz bin Salman recently revealed that there were no pressing concerns of demand/supply dynamics changing gear amid the gradual boost in outputs in an interview aired on Thursday, adding that OPEC+ had all ammunition put in place to change course if necessary. OPEC+ will continue to meet monthly on reviewing the energy market supply dynamics.

READ: Has the Naira been devalued?

Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics spoke on the prevailing market sentiment amid macros pointing to more oil supplies hitting the sensitive energy market and an upsurge in COVID-19 caseloads.

“Positioning is much cleaner, although the market remains directionally long oil. However, the sudden calm and drop in volatility have attracted passive investors back to the fray as the market structure around prompt spreads start to tighten and the dollar begins to roll over.

“Still, the conflicting signals around OPEC+ supply coming back to market amid spiking coronavirus case numbers in India plus parts of Canada as well as Tokyo backtracking into the lockdown Abyss, together with reports linking the UK’s Covid-19 vaccine workhorse to the higher frequency of blood clots, continues to hold the bulls at bay.”

READ: Did OPEC+ April fool the oil market?

Sigma Pensions

What to expect: The most recent OPEC+ agreement on releasing barrels into such present demand was not out of place – suggesting the futuristic price of oil might range between the $60 -$70 price levels with production normalization vs current high excess production capacity taken into consideration.

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Commodities

Gold retreats from 2-week high amid a stronger U.S economy

Gold futures edged lower by 0.20% to trade at $1,739.45 an ounce amid falling U.S. Treasury Yields.

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Gold’s price retreated from its two-week high as positive data from the world’s biggest economy bolstered hopes for a quick economic recovery from COVID-19, despite the recent lockdowns seen in Western Europe.

At press time, Gold futures edged lower by 0.20% to trade at $1,739.45 an ounce amid falling U.S. Treasury Yields, while the greenback slipped to a two-week low.

Just recently, the job openings report in the U.S for February posted a two-year high of 7.367 million; hiring also recorded its biggest surge in 9 months.

READ: Crypto dollar won’t replace cash – US Federal Reserve Chief

However, Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, spoke on the prevailing market conditions giving the precious metal the needed support in the mid-term amid the falling value in the U.S dollar.

“Gold jumps as the US dollar and yields fall. And with the dollar not responding to “US exceptionalism,” it still leaves room for further price climbs.

Gold prices firmed in volatile Asian and European trading as the Easter holidays ended and full trading got back underway. Gold received support from the FX markets as EUR/USD retained Monday’s gains, putting gold on a firm footing.

And as we all know, gold in a dollar weaker environment tends to remain tethered at the hip to the Euro.”

Sigma Pensions

READ: XRP surges by 20% amid strong buying

Bottom Line

Metal pundits argue that the current weakening of the greenback and a recent easing in yields will effectively provide the accelerant to a rally in gold and silver in the midterm.

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