BAKU, Azerbaijan, July 21
By Leman Zeynalova – Trend:
Surplus in the oil market and downward pressure on prices is unlikely in 2021, as market is tight, demand has increased more than supply, oil inventories are falling, Spencer Welch, director of the oil markets and downstream team in the London-based IHS Markit told Trend.
Recently, OPEC+ decided to extend the decision of the 10th OPEC and non-OPEC Ministerial Meeting (April 2020) until the 31st of December 2022.
OPEC+ is set to adjust upward their overall production by 0.4 mb/d on a monthly basis starting August 2021 until phasing out the 5.8 mb/d production adjustment, and in December 2021 assess market developments and Participating Countries’ performance.
“OPEC+ is continuing gradual return of oil supply to the market, providing market price stability. It is mostly the result of OPEC+ that the market stabilized in 2020 and the price recovered. Maintaining the OPEC+ alliance, which requires trying to keep all participants happy (which is a big challenge), is important at present for market stability.
Surplus in the market and downward pressure on prices is unlikely in 2021, as market is tight, demand has increased more than supply, oil inventories are falling. The bigger challenge is early 2022, oil demand is normally weak in 1Q (northern hemisphere people driving less in the winter), this is why OPEC+ are being slightly cautious with how much oil they return and how fast – they want to keep the controls in place through 2022,” he said.
The expert noted that the major oil producers of OPEC are very happy with oil price and the work of OPEC+. “But they are also being very cautious about new projects/investments, ensuring that they still make sense at an oil price much lower than the current market price.”
As for the reaction of US oil producers to the ongoing developments in the market, Welch noted that the US upstream reacts to economics, it is not driven by policy. “At the moment most producers are using the higher price to reduce debt levels, rather than trying to produce more oil. If oil price stays were it currently is ($65-70) US production will start to slowly increase through 2021 and 2022.”
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