OPEC eases cuts in hope of a ‘vaccine’

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Last week OPEC held a virtual meeting to discuss the oil market’s situation. Its decision to reduce its throughput by about two million barrels per day raised some queries.

There are concerns about the real intention behind its pouring more oils into the markets when the demand for oil or the global economy is not recovering or even picking up especially in the absence of any slowdown or reduction in the number of COVID-19 cases particularly in the USA where the pandemic is on the rise.

So, what was the real intention behind the decrease from its original number of 9.7 million barrels reduction of OPEC throughput which reached its bottom of 22 million barrels in total for all OPEC members? What is the message? And why? Is it purely for domestic purposes to meet the summer growth in demand, such as Saudi Arabia, which meant providing more oil to the local market and leaving export volume the same.

The OPEC meeting ended in some uncertainty about how much is to be reduced. Is it the full two million barrels or partly ending with reductions in the range of eight million instead of 9.7 million so as not to disturb the market all the sudden? Oil price remains almost stable and constant in the range of $42-$44 per barrel, which is a comfortable zone, bearing in mind the current trading activities and the uncertainties surrounding world economic revival, if it was to happen this year, leading of course to a boost in the demand.

However, even if oil demand picks up, it will not reach its historical level of 100 million barrels per day, and will be short by about 8-9 million barrels per day. It is not forecasted to go back to that record number in the coming two years. In the absence of hopes for a vaccine against coronavirus, oil will remain weak. OPEC’s decision to decrease production by 1.6 million barrels may be agreed upon to cater for domestic consumption. OPEC should be careful and must adhere to its quota, as the oil market is still frail.

By Kamel Al-Harami Independent Oil Analyst
Email: [email protected]

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