OPEC decision shows it’s not yet convinced about market stability

Oil&Gas Materials 5 October 2021 11:59 (UTC +04:00)

BAKU, Azerbaijan, Oct.5

By Leman Zeynalova – Trend:

The recent OPEC decision is a clear sign to the market that the oil cartel is not yet convinced about the stability of the market, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY, and Global Head Strategy Risk at Berry Commodities told Trend.

At the 21st OPEC and non-OPEC Ministerial Meeting held on Oct.4, OPEC+ reconfirmed the production adjustment plan and the monthly production adjustment mechanism approved at the 19th OPEC and non-OPEC Ministerial Meeting and the decision to adjust upward the monthly overall production by 0.4 mb/d for the month of November 2021.

“Corona issues, possible defaults in China, and still fledgling demand threats are keeping the position as was known before. There is not yet a real underlying factor to increase overall production, as prices are high, but not yet too high to be a threat to economic growth overall. At the same time, OPEC has just published a report that it has lost $240 billion in revenues during 2020, so this will need to be recuperated also in the eyes of Saudi Arabia, UAE and even Russia. A price of around $80 per barrel is high, but not seen as to be too high at present. It also has committed to a further increase the next months, so there will be a slight increase still coming,” he said.

The expert pointed out that OPEC countries are engaged in an economic diversification phase, which is going to need multitrillion investments, the only revenues at present is oil and gas.

“The market is stabilized, as much as it can. Storage volumes are still reasonably high, but still interesting to be reduced. Demand and supply are partly out of sync as the unexpected energy crunch in EU, USA and Asia, is not caused by not enough oil on the market, but low storage of gas and higher coal prices. Substitution is already ongoing, as stated by Saudi. At present, due to energy crunch, demand for oil has already increased by 500,000 bpd. There are still black swans, as a possible re-entrance of Iran is still there, and an economic crisis in China is on the mind of the OPEC producers too,” Widdershoven concluded.


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