Crude oil futures remained more or less steady during early afternoon European trading Oct. 20, while ongoing demand uncertainty remains at the fore as coronavirus resurgences stall demand recoveries and the market looks to OPEC+ for supply re-balancing.
“There have been growing calls for OPEC+ to scrap the plan of easing cuts from Jan. 1, given that the demand recovery has stalled, whilst Libyan output continues to grow,” ING analysts said in a morning note Oct. 20.
“Meanwhile, the US election only provides further uncertainty, particularly if we were to see a Biden victory, as this could see a shift in US policy towards Iran.”
Ministers on a key OPEC+ monitoring committee acknowledged a slowdown in the oil market’s recovery and vowed to be proactive in preventing a slide in prices, with the scheduled tapering of the coalition’s output cuts looming at year-end.
With six weeks to go before the full 23-member OPEC+ alliance meets to consider its 2021 production plans, the Joint Ministerial Monitoring Committee said Oct. 19 that it was closely following market trends and would not hesitate to call for further supply restraint if needed.
OPEC and 10 partners are set to ease their 7.7 million b/d collective production cuts by about a quarter to 5.8 million b/d at the start of 2021, but fading demand growth and the resurgence of Libyan supplies have muddied the path to stable, higher oil prices. Dated Brent has been stuck in the low $40s/b for several weeks.
“The main problem remains the weak demand and the uncertainty about how it will develop, which argues against any increase in production,” Commerzbank analysts said in a note Oct. 20. “At the same time, production is rising in a number of countries that have not signed up to the production cuts agreement.”
“In our opinion, the probable return of Iranian oil exports if the Democratic challenger Biden were to win the presidential election would pose an even bigger “risk” to the “OPEC+” agreement than the recent marked increase in Libyan production,” they said.
“In fact, in view of the many serious financial and economic challenges, the splits within the alliance are actually likely if anything to widen in the near future.”
Meanwhile, Iraq expects global oil demand to grow by 3% in 2023, and OPEC’s second largest oil producer does not plan to cancel projects due to the current slowdown, the country’s oil minister said Oct. 20.
In 2023, “will start the normal oil demand increase of 3% per year,” Ihsan Ismaael told the MEA Energy Week virtual conference organized by Siemens Energy.
OPEC has forecast a “catching up” by the sectors most affected by COVID-19 lockdown restrictions to help a rebound in oil demand back to previous volumes by about 2022.
However, other organizations have more bearish views for an oil demand recovery.
BP, most notably, said in September that the market may never recover to pre-pandemic levels of roughly 100 million b/d, as the company charts a future invested heavily in renewables.
Sarah Jane Flaws