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.
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.
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.
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.
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.
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.
Crude oil prices drop again after losing 4% on Monday
Oil benchmarks fell around 4% on Monday following rising concerns of increased coronavirus cases.
Crude oil prices drifted lower at the later part of Asia’s trading session on Tuesday, as Tropical Storm Beta in the Gulf of Mexico weakened.
What we know: Brent oil futures were down by 0.31% to $41.31 at the time this report was drafted, and WTI futures fell by 0.23% to $39.22.
Both oil benchmarks fell around 4% on Monday, hit by rising concerns that an increase in coronavirus cases in major markets could spur fresh lockdowns and hurt demand.
Oil prices are falling again amid Tropical Storm Beta reduced in power in the Gulf of Mexico, allaying fears of an extended shutdown that began in the previous week with Hurricane Sally.
In a note to Nairametrics, Stephen Innes, Chief Global Market Strategist at AxiCorp, spoke on the macros disrupting the price of hydrocarbon.
“In line with broader markets, oil prices were hammered lower overnight as the growth assets buckled amid lockdown fears in Europe and the UK.
There continues to be concern around the effects on demand of the resurgence in Covid-19 cases globally as countries have to counterbalance the economic and health issues in getting back to work. The second half of 2020 was always going to reflect this price see-saw.
While mother nature is doing its part as traders focus on the hurricane season in the US, OPEC+ cuts seem to be tightening the market.”
However, the COVID-19 crisis continues to deepen with growing concerns about global energy demand arising from the latest data on the spread of the virus in major world economies such as the U.K.
Oil prices slump over prolonged COVID-19 restrictions, Libya resumes production
Oil traders are panicky over the potential hit on oil prices following higher output in Libya.
Crude oil prices slumped on Monday over increasing concerns over prolonged coronavirus restrictions and the resumption of oil production by Libya’s National Oil Corporation (NOC) from certain fields and some exports of crude oil.
The oil company added that it will only restart production at safe fields and exports from safe ports.
The American headline crude, the WTI declined by about 5% to $39 per barrel while the Brent crude declined by 4.13% to $41.37 per barrel.
Oil traders are panicky over the potential hit on oil prices following higher output in Libya as it resumes production
NOC’s Chairman, Mustapha Sanalla, “Our main concern is to start production and exports taking into account the safety of workers and operations, as well as to prevent any attempts to politicize the national oil sector, which means that the NOC is doing its technical and non-political mission to resume operations in the safe areas and technical evaluation is underway in preparation for the start of production and exports.”
The company said the force majeure will be lifted from fields and ports that are free of the presence of paramilitary groups and mercenaries but remain in effect for those where there are still such groups, which will disrupt the work of NOC.
The head of the Libyan National Army, General Khalifa Haftar, whose troops, with assistance from other affiliated groups, shut Libya’s oil ports in January, announced the end of the blockade on Friday. This was on the same day, NOC’s Sanalla disclosed that the force majeure will only be lifted from facilities after they are demilitarized.
The blockade by the military had driven down the oil production in Libya to the current 100,000 barrels per day as against the 1.2 million barrel per day at the beginning of the year.
This latest development is likely to reverse the improvement in oil prices that followed the latest meeting of OPEC+, which gave a glimmer of hope for supply, if not demand.
Crude oil prices post gains, OPEC+ warns overproducers
Both crude oil benchmarks remained above the $40-mark.
Crude oil prices rallied higher at most parts of Asia’s trading session on Friday. The recent price surge in crude oil prices is coming as OPEC+ concluded its meeting yesterday, with a stern warning to its overproducing members and energy speculators.
What we know: At the time this report was written Brent crude prices gained 0.81% to $43.65 and WTI futures were up 0.76% to $41.29. Both crude oil benchmarks remained above the $40-mark.
Why Oil prices are rallying up? OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting held on Thursday, revealed that OPEC+ members agreed to obey the 7.7 million barrels per day production cuts agreed on in the month of July.
In addition, Saudi’s Energy Minister, Prince Abdulaziz bin Salman, sent an unusually stern warning to both overproducing members (the United Arab Emirates in particular) and energy price speculators.
“Using tactics to over-produce and hide non-compliance have been tried many times in the past, and always end in failure,” Prince Abdulaziz said at the opening session of the OPEC+ committee that monitors the output cuts.
In an explanatory note, Stephen Innes, Chief Global Market Strategist at AxiCorp gave the following insights on Saudi’s battle against overproducing members:
Oil prices recovered after Saudi Arabia threw down the compliance gauntlet, publicly raking laggards over the coal and firing lightning bolts at short-sellers.
In a week where oil price fragilities were exposed after traders digested a combination of gloomy agency short-term forecasts, it was Saudi Arabia throwing down the gauntlet, publicly raking laggards over the coal while emphatically calling for OPEC+ members to meet their quotas that gushed oil prices to their most massive three -day advance since May.
During the OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting, Saudi Arabia’s Prince Abdulaziz bin Salman read the riot act to cartel members who cheated on production quotas.
And Russia’s Energy Minister Alexander Novak chimed in for good measure saying the group should continue to strive for high compliance.
Oil prices have recovered from recent lows, in line with a rebound in broader markets, but will remain sensitive to the pace of the global economic recovery and news about global supply.