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Amid growing ‘crude’ concerns, the Organisation of Petroleum Exporting Countries and its allies (OPEC+) are preferring to keep their cards to the chest. After their virtual meeting last Thursday, the Saudi energy minister Prince Abdulaziz bin Salman underlined, ‘OPEC+ would take a pro-active and pre-emptive stance in addressing oil market challenges’.
Quoting a source, Reuters is confirming the OPEC+ may also hold an extraordinary meeting next month, ‘in case the oil markets continue to sour on account of weak demand and rising coronavirus cases’.
Avoiding any hint about their next steps, the Saudi energy minister emphasised, “Anyone who thinks they will get a word from me on what we will do next, is absolutely living in a La La Land”. However, “I’m going to make sure, whoever gambles on this market will be ouching like hell”.
The gun seems out on betting. Warning traders against betting heavily in the oil market, Prince Abdulaziz warned that he will try to make the markets “jumpy”. And, indeed he can, one needs to concede here.
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And there are reasons for the growing concern. Markets are melting. At its meeting, the OPEC+ noted that the rising Covid-19 cases in some countries could curb energy demand despite initial indications of a decline in oil stocks. Cases have been rising in many European countries, while total infections in India have passed 5 million and new cases are on the rise in some US states.
The resurgence in Covid-19 cases could further dampen oil demand and interfere with a decline in oil inventories, Reuters reported citing an internal document of the OPEC+ technical panel.
The OPEC has hence cut its estimates for world demand by 400,000 barrels per day (bpd) for both this year and the next. It now sees a drop in demand of 9.5m bpd in 2020. Only last month, the OPEC projected a demand drop of 9.1m bpd in 2020. The OPEC now believes consumption would rise by only 6.6m bpd in 2021.
The Paris-based International Energy Agency also now expects 2020 oil demand to be 8.4m bpd lower than it was a year ago. The projected cut in demand is up from 8.1m bpd forecasted in August. Underlining the demand weakness, the IEA underlined that despite the continued recovery in the Chinese demand, India is showing renewed weakness. “The uncertainty created by Covid-19 shows little sign of abating,” the IEA stated in its September Oil Market Report.
“As national lockdowns eased, there was an initial sharp recovery in demand led by gasoline, but the curve has flattened out and it is becoming increasingly apparent that Covid-19 will stay with us for some time,” the IEA added. Commenting on the IEA’s oil market report, Michael Burns, an energy partner at law firm Ashurst was reported as saying, “The impact of Covid-19 on the global economy is more sustained than could have been predicted six months ago”.
Oil major, British Petroleum (BP) in its annual energy outlook report released last week, strongly underlined the world is past the era of growing crude oil demand. The message of the outlook, according to media reports, is that oil consumption may never recover to pre-pandemic levels.
The pandemic had changed society’s habits and needs, the report added.
The BP report also underlined that the projected dip in demand was not only because of the pandemic itself but other factors are also contributing to the change in demand patterns. It referred to the rise in technological advances in electric vehicles and batteries and rising interest in hydrogen “fuel”. The report also predicts an increase in renewable electricity generated by more wind farms, solar panels, and hydro generation. All these would impact consumption patterns, the report mentioned.
Producers are beginning to react to changing demand dynamics. Kuwait Oil Company (KOC) has scrapped a $400m project awarded earlier this year, due to low oil prices, a local Kuwaiti newspaper reported. The project would have involved the development of heavy crude facilities in the north, including 11 oil wells. The KOC scrapped the deal as authorities have instructed it to cut spending on projects because of low oil prices and the coronavirus pandemic and its impact.
