BAKU, Azerbaijan, March 12
By Leman Zeynalova – Trend:
Now only oil market mechanisms can dictate supply-demand balance, Trend reports with reference to Rystad Energy, an independent energy research and business intelligence company.
During the meeting held March 6, OPEC+ failed to reach any agreement on extension of the deal or deepening the cuts further, which led to a significant decline in oil prices.
Oil prices could fall into the low $20s for the global market to rebalance, as Rystad Energy expects an increase in global supplies in the next three months.
“OPEC+ countries are locked and loaded to add between 1.5 million and 2.5 million barrels per day (bpd), which we estimate is their realistic short-term capability. After the breakdown in OPEC+ negotiations and subsequent oil price free-fall, Saudi Arabia and the UAE have both signaled their intention to flood the market with additional oil production starting next month,” said the company.
Espen Erlingsen, Rystad Energy’s Head of Upstream Research, says that without OPEC+, the global oil market has lost its regulator and now only market mechanisms can dictate the balance between supply and demand.
Rystad Energy estimates that global liquids demand was reduced by around 4 million bpd in February, primarily driven by the coronavirus. “Over the next months, demand might be weakened by between 2 million to 4 million bpd due to the virus.”
Rystad Energy estimates that the total demand for liquids will be around 100 million bpd in June 2020, assuming no coronavirus impact.
“The cost of supply curve moves to the right if OPEC+ increases production. The equilibrium price moves from around $25 per barrel (no additional OPEC+ supply) to $19 per barrel in the modest 1.5 million bpd increase scenario and $14 per barrel in the large 2 million bpd increase scenario.”
If demand weakens by 2 million bpd in June (total demand of 98 million bpd), the equilibrium oil price moves from around $19 per barrel to around $11 per barrel in the modest OPEC+ increase scenario, said the company.
“If demand weakens by 4 million bpd in June (total demand of 96 million bpd), the equilibrium oil price moves down to around $9 per barrel in the modest OPEC+ increase scenario.”
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