OPEC+ will have to remain very vigilant until end-2020, in 2021

Oil&Gas Materials 8 June 2020 21:06 (UTC +04:00)

BAKU, Azerbaijan, June 8

By Leman Zeynalova - Trend:

OPEC+ countries did a pretty good job since April. but they will have to remain very vigilant until at least the end of 2020 and, very probably, in 2021, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris) told Trend.

“The price of North Sea Brent is now above $42 per barrel as against an average of about $18/b in April. This trend clearly shows that the OPEC+ agreement (OPEC plus 10 non-OPEC countries) is working,” he said.

Perrin noted that huge supply cuts implemented since 1 May are contributing to the progressive rebalancing of the world oil market.

“The end (or the softening) of lockdowns throughout the world will increase global oil demand. The rise in oil prices after a free fall between January and April is the consequence of both evolutions: much less supply and a little more demand,” noted the expert.

He pointed out that the OPEC+ meeting on 6 June was important for the three following reasons:

• Oil or Energy Ministers of OPEC+ countries decided to extend until end July the Phase 1 output cuts (9.7 million barrels per day). These cuts were due to be applied in May and June 2020.

• The OPEC+ meeting called on the countries which are not in full compliance with their commitments (in particular Iraq and Nigeria) to respect the decisions adopted in April. A compensation mechanism was put in place: these countries will have to catch up within the July-September period.

• The Joint Ministerial Monitoring Committee (JMMC) will meet every month between June and November (the next OPEC+ Summit will be held on 1 December) in order to observe the implementation of the OPEC+ agreement.

“The latest OPEC+ meeting is a further step in the efforts accomplished by oil producing countries, whether or not members of OPEC and OPEC+, to contribute to the rebalancing of the oil market. Some OPEC+ countries are producing beyond their commitments but four other countries decided to reduce their output by a greater amount than announced. These voluntary production reductions represent about 1.2 million b/d, of which 1 million b/d for Saudi Arabia,” noted Perrin.

He believes that a lot of work remains to be done by the end of 2020, which will be in any case a very difficult year for the international oil industry and for oil producing countries.

OPEC+ countries now estimate that world oil demand will fall by 9 million b/d in 2020 (world oil demand was 100 million b/d in 2019).