OPEC Fears Prolonged Pandemic
October 19, 2020
Crude oil and refined fuel products prices fell slightly on Friday, which was mainly driven by rising Libya oil output, US crude oil rigs coming back online, and news of spikes in COVID-19 cases in Europe and the US that could limit or reduce oil demand in the future. However, prices were up for the week due to US oil and refined fuels stocks dropping and gasoline demand rising.
OPEC and its allies fear a prolonged second wave of the COVID-19 pandemic and an increase in Libya’s output could push the oil market into surplus next year. A surplus could threaten plans by OPEC, Russia and allies to taper record output cuts made this year by adding 2 million bpd of oil to the market is 2021. Under its worst case scenario , the market could flip into surplus of 200,000 bpd in 2021. It sees Libya’s oil production increasing to as much as 1.1 million bpd. Under its base case, OECD oil stocks are expected to stand slightly above the five-year average in the first quarter of 2021, before falling below that level for the rest of the year. A ministerial OPEC+ panel, known as the Joint Ministerial Monitoring Committee, will consider the outlook when it meets today. OPEC+ Oil Minister are scheduled to meet again on November 30th-December 1st.
US energy firms this past week added the most oil and natural gas rigs since January. Baker Hughes reported that oil and gas rig count increased by 13 to 282 in the week ending October 16th. US oil rigs this posted their largest build since January, increasing by 12 to 205. The number of rigs searching for natural gas increased by 1 to 74.
The Commitment of Traders Report showed that managed money funds continued to cut their net long positions for second consecutive week. The funds cut their net long position by 9,442 contracts to 288,454 contracts in the week ending October 13th on a combined NYMEX and ICE futures and options basis.
The International Monetary Fund (IFM) is forecasting crude oil price to remain range bound between $40 and $50 in 2021 and prices to hover between $40 and $45 in the first quarter.