BAKU, Azerbaijan, Nov.24
By Leman Zeynalova – Trend:
The current challenge faced by OPEC+ is that the recovery of global oil demand has slowed over recent weeks in Atlantic Basin consumer nations as the cases of Covid-19 grow rapidly across Europe and the United States, resulting in the return of movement restrictions in Europe to try and slow the virus, Alan Gelder, VP Refining, Chemicals and Oil Markets at Wood Mackenzie, told Trend.
“The outlook for demand recovery however remains for continued improvement from the low of Q2 2020 when restrictions on personal mobility were more widespread. We are entering winter in the northern hemisphere, with Q1 demand typically being below that of Q4 due to seasonal factors,” he said.
Gelder pointed out that a slower demand recovery makes it challenging for OPEC+ to increase production as they had originally hoped in April 2020 when they put together the current production restraint deal.
“A large challenge on the supply side has been the return of Libyan supplies this autumn to the oil market, with current production levels reported as broaching 1 million b/d, significantly higher than production for most of this year. The challenge faced by OPEC is how to retain an oil market in broad balance whilst increasing production levels. If OPEC+ can agree on delaying the production increase, it will slow the return of around 2 million b/d of medium sour barrels, primarily from the Middle East. This would avoid the oil market going into significant over-supply during Q1 2021, so preventing a potential price collapse during a period when global oil demand weakens seasonally (from Q4 into Q1). Recent encouraging news about the positive results from a number of vaccines is supportive, but these vaccines need to be authorised for use and deployed across large populations, which is unlikely to have a material impact on global oil demand prior to the end of Q1 2021,” he added.
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