OPEC: Second Virus Wave Pushes Oil Market into Surplus

OPEC official wrote in a confidential document seen by Reuters that a second wave of the COVID-19 pandemic, as well as a leap in Libyan oil production may push the market into a surplus in 2021.

OPEC+ producers called on the Joint Technical Committee to look into this worst-case scenario during a virtual meeting yesterday, as the September meeting did not expect any surplus scenarios.

Any surplus would threaten plans by OPEC+ to add 2 million barrels per day (bpd) to the market in 2021.

In 2020, world oil demand is estimated to decline by 9.5 million bpd, year-on-year, reaching a level of 90.3 million bpd, according to OPEC.

“The earlier signs of economic recovery in some parts of the world were overshadowed by fragile conditions and growing skepticism about the pace of the recovery,” according to the October report.

Meantime, previous indications of economic recovery in most countries have been overshadowed by fragile conditions and growing fears about the pace of recovery as possible partial closures during the winter could double the risks to recovery and oil demand.

The document presented scenarios that included a base case that still shows a deficit of 1.9 million barrels per day on average, yet, under the worst-case scenario, the market could turn into a surplus of 200,000 bpd in 2021.

Since the last committee meeting in September, Libyan production has climbed and the global rise in coronavirus cases has led to renewed restrictions on movement in some countries, weakening demand for crude oil.

It is noteworthy that OPEC+ has agreed to cut production to support falling prices and low demand, cutting the production volume by 9.7 million bpd in May 2020,  7.7 million bpd in August 2020, and easing cuts to 5.7 million bpd by January 2021.