BAKU, Azerbaijan, Nov.10
Renewed European lockdowns will delay demand recovery in the global oil market, particularly if these measures are extended into 2021 or further restrictions are re-introduced in the US or other regions, Fitch Ratings says. However, OPEC+ supply adjustments should mitigate the impact of demand volatility on oil prices. We expect global demand to be stronger during the current lockdowns than in April-May and have kept our oil price assumptions unchanged.
In September and October oil consumption was about 5% lower than before the coronavirus pandemic, although this was a dramatic improvement compared to April, when demand was about 20% lower yoy. European lockdowns, even if extended, should not result in a massive fall in demand as Europe accounts for just about 15% of global oil consumption. Furthermore, the current lockdowns are less strict, which means demand for vehicle fuel will be less affected. However, we expect a combination of the lockdowns and rising infection rates across the world to delay a full demand recovery beyond 2021.
Under the original OPEC+ deal reached in April, members would increase production by about 2 million barrels per day (MMBpd) from January 2021. However, we expect that OPEC+ is likely to at least extend the cuts by several months in order to avoid production surpluses and rapidly falling prices. Saudi Arabia and Russia have already indicated that they are considering extending the existing production cuts by three months or making even larger cuts. We believe that OPEC+ will continue to make timely changes to supply in 2021, which should reduce oil price volatility. The next OPEC+ meeting is scheduled for 30 November and 1 December.