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The new wave of Coronavirus may slow down crude recovery, OPEC warns

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Manish Saini
Manish works as a Journalist and writer at Revyuh.com. He has studied Political Science and graduated from Delhi University. He is a Political engineer, fascinated by politics, and traditional businesses. He is also attached to many NGO's in the country and helping poor children to get the basic education. Email: Manish (at) revyuh (dot) com

OPEC is closely monitoring the epidemiological situation in the US, Brazil, India and Spain, among other countries, and fears that the second wave of coronavirus infections will slow down the gradual recovery of the global oil market that it expects in the coming months.

In its monthly report published this Wednesday, The Organization of the Petroleum Exporting Countries (OPEC) considers it “necessary” to maintain vigilance and efforts, both by oil-producing countries and consumers, to boost energy consumption and raise the value of oil barrel.

The current level of “petro-prices”, although it is about $ 20 higher than those of April, is far from being satisfactory for producers.

“They have experienced excessive volatility in 2020, following the unprecedented crisis in oil demand in the first half of 2020 caused by the COVID-19 pandemic,” highlights OPEC.

Remember how in April the West Texas Intermediate (WTI) entered negative territory, and Brent devalued to less than $ 20, 70% less than at the beginning of the year.

Prices, which currently exceed $ 40/barrel, “began to gradually recover since May”, mainly thanks to the cut in supplies from OPEC + (OPEC, Russia and other allies) by a volume equivalent to 10% of the world supply of crude oil, recalls the report.

But they are still far from the close to $ 70 that they reached last January, a situation that “points to the need to continue” limiting the supply, on the one hand, and stimulating energy consumption, on the other, the organization believes.

Demand reduction

The economic slowdown caused by measures to curb the expansion of the coronavirus has been in some countries greater than estimated a month ago, which is why OPEC sees that its impact on world demand for “black gold” will be even worse than expected.

Thus, the decline in consumption will be this year 9.09 % – 9.1 million barrels per day (mbd) – compared to 2019, the document says, reviewing the historic drop by more than one percentage point (100,000 barrels per day).

For 2021, OPEC expects, based on an improvement in the epidemiological situation on the planet, a year-on-year increase of 7 mbd, to an average of 97.63 mbd.

Of course, these forecasts are based on the scenario that “COVID-19 will be contained to a large extent worldwide, without major disruption to the global economy,” the organization highlights.

The expectations

“Looking ahead, price developments … will continue to be affected by concerns about the second wave of infections and rising global stocks (stored crude reserves),” it warns.

“It is possible that the stocks of products (derived from crude) continue to be high due to the low demand for fuel for road and air transport,” they add.

The forecast of constant improvement from the drop in consumption to 81.84 mbd in the past quarter is thus overshadowed by the upward trends in the numbers of infections in various countries.

For OPEC, “it will be necessary to closely monitor the latest wave of infections in the United States, as the continuation of this trend may lead to an erosion of consumer confidence and spending behaviour.”

“The same is true of events in India and Brazil,” while in Europe, while “the COVID-19 situation is expected to continue to improve (…), some euro area countries, in particular, Spain is again facing considerable challenges”, highlight the experts of the organization.

Overall, the report reflects a mix of factors, some encouraging for the sector’s battered industry, and others more pessimistic.

It stands out that the “floating storages” of crude have decreased, that is, those that had been accumulated in ships due to the lack of capacity of traditional inventories.

On the other hand, “world trade in crude oil and products is still not very dynamic compared to the levels of a year ago,” says OPEC, and recalls that in June, “Japan’s crude imports reached their lowest level in more than a decade.”

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