OPEC+ producers have good mechanisms to remain flexible
BAKU, Azerbaijan, July 24
By Leman Zeynalova – Trend:
OPEC+ producers have some good mechanisms in order to remain flexible and reactive during this extraordinary year 2020 if needed, 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.
He recalled that at their recent ministerial summit in June OPEC+ countries decided to extend by one month, until end July, the first period with the maximum production reductions (9.7 million b/d). This first period will end in a few days and these countries will very logically apply output cuts decided for the second period, added the expert.
“The April 2020 agreement was conceived on the following assumption: the most difficult period for the oil and energy sectors will be the second quarter of this year. It was thus necessary to implement massive cuts during this period in order to reduce the overproduction of oil on the world market. The second half of this year will be better because of the end of the massive lockdowns and the restart of the world economy, which will push oil demand upwards. So far this assumption is perfectly correct,” Perrin noted.
He pointed out that world oil demand is increasing, which does not mean that the world has reached the pre-crisis levels until end 2019).
“As the Covid 19 crisis is not solved it is important for oil producing countries to go on with production cuts but these cuts will be soon less huge than over the May-July period in order to take into account the return of world economic growth. So far the OPEC+ April agreement (slightly modified in June) is working as planned. North Sea Brent oil price is now at $44.70 (September 2020 contracts quoted on ICE Futures in London) as against about $18/b in April, which was the lowest point for this year,” said the analyst.
He noted that the biggest problem for OPEC+ producers and for the world economy would be a new wave of massive lockdowns in the next few months, which would lead to a new fall in oil demand and prices.
“The implicit assumption behind the April 2020 agreement is that there will not be a second wave, which is of course not 100 percent certain. But, once more, so far the scenario is the right one. As shown recently in China, Spain, Australia and the U.S. the authorities want to avoid national lockdowns and are ready to take very rapidly restrictive measures at a local level in order to break the transmission of the virus without shutting down their national economies,” said the expert.
Perrin noted that OPEC+ countries will continue to follow very closely the situation of the world oil market thanks to their Joint Ministerial Monitoring Committee (JMMC), which will meet every month.
“The next meeting of the JMMC is scheduled for 18 August. If the JMMC thinks that some adjustments are needed an OPEC+ ministerial summit could be organized. If no further adjustments are required in 2020 the next OPEC+ ministerial meeting will take place on 1 December.”
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