OPEC challenges may persist into 2021 due to the coronavirus pandemic

OPEC challenges may persist into 2021 due to the coronavirus pandemic
Image by wasi1370 from Pixabay

OPEC challenges may persist into 2021 due to the coronavirus pandemic, according to Abdelmadjid Attar, OPEC president.

“The shock to the oil industry is massive and its severe impacts will likely reverberate in the years to come,” said Attar.

“The pandemic continues to rage with cases soaring in many regions around the world. It continues to affect adversely the global economy and, consequently, the world energy markets, in an unprecedented manner,” he added.

OPEC and allies have delayed talks through to Thursday, according to Reuters, citing three unnamed sources, as key members have not yet agreed on how much oil they must pump amid weak demand.

Caroline Bain, the chief commodities economist at Capital Economics, previously stressed that meetings on Monday and Tuesday would not unlock any surprises, saying an extension of the production cut is possible.

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“We now think that the oil price (Brent) will stand at $60 per barrel by end-2021,” she said in a research note Friday, revising forecasts due to the encouraging vaccine trial data from pharma giants that could help reopen economies after the coronavirus crisis.

Oil prices dropped early Tuesday. Brent crude traded at $47.56, down around 0.65%, while U.S. West Texas Intermediate (WTI) declined 0.66% to $45.02.

OPEC challenges

“Our base case remains that the group will err on the side of caution and heed the market’s anxieties stemming from the virus resurgence on both sides of the Atlantic and unite behind a 3 months delay in its next phase 1.9m b/d of tapering to April 2021,” said Ehsan Khoman, head of MENA research and strategy at MUFG, in a recent research report.

“Absent any unforeseen event risks leading up to the meeting, we do not anticipate much price action post-meeting given markets have all but priced in a 3 months extension.”

Meanwhile, Ron Smith, an oil and gas analyst at BCS Global Markets, is optimistic about prices, especially on a six-month view. He said in an email to CNBC that oil could be at mid-$50s by the end of 2021.

In April, the OPEC meeting led to an agreement among countries that they will cut oil production as the coronavirus pandemic drains demand for crude.

Almost all oil-producing nations agreed to cut oil production due to low demand caused by the COVID-19 outbreak. However, Mexico refused to join and commit to its share of the cuts.

Meanwhile, Saudi Arabia and Russia, members of OPEC+, pledged to cuts that would take 10 million barrels per day offline.

In a statement released by OPEC after the meeting, they outlined details of the cuts but clarified that the measures were “agreed by all the OPEC and non-OPEC oil-producing countries participating in the Declaration of Cooperation, with the exception of Mexico, and as a result, the agreement is conditional on the consent of Mexico.”
“A couple of weeks ago, we were all thinking this was going to be a pretty routine meeting, it seemed like all the ducks were lined up in a row for a rollover of these … cuts,” said Herman Wang, S&P Global Platts’ Middle East and OPEC managing editor. “But now, we’re seeing some cracks in the foundation,” he said.
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