OPEC is expecting oil demand to drop by 6.85 Million BPD

OPEC is expecting oil demand to drop by 6.85 Million BPD

Yesterday OPEC published its monthly oil market report. The organization revised lower its expectations for demand. OPEC now estimates that demand over 2020 will shrink by 6.85 Million Barrels Per Day. Meanwhile, over the second quarter of 2020, it will drop by 11.86 million BPD. 

Despite significant revisions, OPEC failed to meet IEA forecasts. The agency is expecting demand to fall by 9.3 million BPD in 2020 and by a substantial 23.1 million BPD in the second quarter of the year.Oil Prices Dropped Despite OPEC+ Output Supply Cut - MyForexNews

The OPEC report suggests that production cuts will fail to balance the market over the second quarter, with the call on OPEC output at just 19 million BPD, quite a bit less than the 25 million BPD we expect from the organization to pump over the quarter. The number assumes that the OPEC members will increase production in April, before cutting output in May. It’s when the agreement starts.

ConocoPhillips, an American multinational energy corporation, announced yesterday that it would be cutting its North American production by nearly 200 million BPD as a result of the low price environment. These production decreases will be happening at an oil sands plant in Canada, along with production in the Lower 48 region of the United States. 

Without the need for mandated cuts, the market will see significant reductions from outside the OPEC+ group. Instead, with the low price environment, the market will force producers to cut back.

 

Earlier in the month, Russia and Saudi reached an agreement over an oil production cut

On the 8th of March 2020, Saudi Arabia launched a price war with Russia. It promoted a 65% quarterly decline in the price of oil. A breakup in the dialogue between the OPEC and Russia over proposed oil-production cuts amid the 2019–20 coronavirus pandemic triggered the price war. Russia left the agreement. It led to the withdrawal of the deal, leading to the collapse of the OPEC+ alliance. 

On the 10th of March, Saudi Arabia declared that it would extend its production from 9.7 million BPD to 12.3 million BPD, while Russia intended to increase oil output by 300,000 BPD. 

Oil prices were depressed for the rest of the March. At the beginning of April, Donald Trump, the president of the US, claimed that he brokered negotiations between Saudi Arabia and Russia, and a cut of 10-16 million BPD would be possible. The US oil prices surged by 25% and it marked the most significant one-day increase in history.

On the 3rd of April, Vladimir Putin, the president of Russia, ordered Alexander Novak, Russian energy minister, to arrange an extraordinary OPEC meeting. He declared that global output could be cut by 10 million BPD. 

Oil prices bounced in response to Putin’s statement. Brent oil rose to $32 on the 3rd of April. Later on the day, Saudi Arabia energy and foreign ministers blamed Russia for not taking part in the OPEC+ deal. 

OPEC and Russia agreed to drop production by 10 million BPD on the 9th of April.

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