Exclusive: OPEC+ fears second virus wave could lead to oil surplus in 2021

In this news, we discuss the Exclusive: OPEC+ fears second virus wave could lead to oil surplus in 2021.

MOSCOW (Reuters) – OPEC and its allies fear a prolonged second wave of the COVID-19 pandemic and a surge in Libyan production could push the oil market into surplus next year, according to a confidential document seen by Reuters, a prospect darker than just a month ago.

A panel of OPEC + producer officials, called the Joint Technical Committee, discussed this worst-case scenario in a virtual monthly meeting on Thursday. As of September, the panel had found no surplus in the scenarios considered.

Such a surplus could threaten the plans of OPEC, Russia and its allies, known as OPEC +, to reduce the record production cuts made this year by adding 2 million b / d of oil on the market in 2021.

The Organization of the Petroleum Exporting Countries has not yet indicated a plan to end this increase in supply.

“The first signs of economic recovery in some parts of the world are overshadowed by fragile conditions and growing skepticism about the pace of the recovery,” according to the document used at the monthly panel meeting in October.

“In particular, a resurgence of COVID-19 cases across the world and the prospect of a partial lockdown in the coming winter months could exacerbate risks to the economic recovery and oil demand,” he said. .

The document presented scenarios that included a baseline scenario that still showed a 2021 deficit of 1.9 million barrels per day (bpd) on average, although lower than the deficit of 2.7 million bpd predicted in the base of the previous month.

But in a worst-case scenario, the document says the market could tip over to a surplus of 200,000 bpd in 2021.

This year, OPEC + agreed to make record production cuts to support falling prices as demand for oil collapsed. It cut 9.7 million b / d from May, which was reduced to 7.7 million b / d from August. From January, the cuts are expected to narrow to 5.7 million bpd.

However, since the JTC meeting in September, Libyan production has increased and a global increase in coronavirus cases has led to further restrictions on movement in some countries, weakening demand for crude.

Libya, a member of OPEC, is exempt from any reduction in production.

In the document’s worst-case scenario, Libyan production would increase in 2021 to 1.1 million bpd, a source familiar with the details of the meeting said. In its baseline scenario, Libyan production would be 600,000 bpd in 2021.

In a worst-case scenario, stocks of OECD commercial oil – a benchmark used by OPEC + to assess the market – would remain high in 2021 relative to the five-year average instead of starting to fall below that threshold. .

This scenario also sees a stronger and more prolonged second wave of COVID-19 in the fourth quarter of 2020 and the first quarter of 2021 in Europe, the United States and India, resulting in a weaker economic recovery, weakening the demand for oil. .

According to the document’s reference scenario, OECD oil stocks are expected to be slightly above the five-year average in the first quarter of 2021, before falling below that level for the rest of the year.

An OPEC + ministerial panel, known as the Joint Ministerial Follow-up Committee (JMMC), will consider the outlook at its meeting on Monday. The JMMC can make a policy recommendation.

OPEC + oil ministers are due to meet again on November 30-December. 1.

Report by Vladimir Soldatkin; Editing by Alex Lawler and Edmund Blair

Original © Thomson Reuters

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