Oil cartel OPEC may decide on extending the existing level of production cuts beyond December to keep the crude price stable next year. The chances are high as the extended run of Covid-19 pandemic threatens to keep demand under check over a longer period, though the global economy looks to reach closer normalcy next year.
Oil sector experts privy to the development said that an Ordinary Meeting of OPEC is scheduled in Vienna on November 30. This meeting, they said, may also discuss extension of production cuts beyond December and is likely to seal a deal in this regard after having few more parleys over next one month.
“Demand recovery reversal due to rising infections and/or Iran’s supply rise are risks to oil price but to counter these risks, OPEC+ can delay pruning of production cuts from 7.7 million barrels of oil per day (mbpd) to 5.8 mbpd to a later date or deepen cuts,” a research report by ICICI Securities has said.
Though oil is out of the woods with demand recovering from April 2020 lows and demand exceeding supply from June 2020, the fresh wave of the pandemic in Europe and increasing cases in US has thrown fresh concerns over normalcy returning to the market anytime soon.
Global crude oil price has moved between $40-42 per barrel range for last couple of months even through rising demand in recent months has created minor supply shortage of oil in the market.
According to US Energy Information Administration (EIA), global oil demand has exceeded supply since June 2020 with global supply deficit at 1.7-3.6 mbpd in June-September 2020 vs supply surplus of 19.5 mbpd in April 2020.
But concerns remain over continuation of demand rise into 2021 over the pandemic.
The International Energy Agency (IEA) has estimated global oil demand to rise by 5.5 mbpd YoY but supply rise is estimated at only 2 mbpd YoY in CY21E, assuming OPEC+ prunes cuts to 5.8 mbpd from January 2021 and Libyan output ramps up; thus, supply deficit of 1.2 mbpd is estimated in CY21E vs surplus of 2.2 mbpd in CY20E.
But according to ICICI Securities, these numbers may come under pressure if the pandemic run is extended. Therefore, experts said that OPEC decision will be closely watched as continuation production cuts would support oil prices if demand remains subdued.
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