The Organization of Petroleum Exporting Countries, OPEC, is uncertain about a quick recovery of the oil market, as World oil demand will rebound more slowly in 2021 than previously thought as COVID-19 cases rise.
Demand will rise by 6.54 million barrels per day(bpd) next year to 96.84 million bpd, the OPEC said in a monthly report. The growth forecast is 80,000 bpd less than expected a month ago.
A further weakening of demand could threaten plans by OPEC and allies to taper in 2021 the record oil output cuts they made this year. OPEC is keeping an eye on the situation but currently has no plan to cancel the supply boost.
“We believe that this is the calculated volume to cater for the demand coming back,” United Arab Emirates Energy Minister Suhail al-Mazrouei told the Energy Intelligence Forum on Tuesday, referring to the 2021 output increase.
Oil prices have collapsed as the coronavirus crisis curtailed travel and economic activity. While in the third quarter an easing of lockdowns allowed demand to recover, OPEC sees the pace of economic improvement slowing again.
“While the 3Q20 recovery in some economies was impressive, the near-term trend remains fragile, amid a variety of ongoing uncertainties, especially the near-term trajectory of COVID-19,” OPEC’s report said of the economic outlook.
“As this uncertainty looms large, amid globally strong rise in infections, it is not expected that the considerable recovery in 3Q20 will continue into 4Q20 and in 2021.”
OPEC has steadily lowered its 2021 oil demand growth forecast from an initial 7 million bpd expected in July.
The group also cut its estimate of world oil demand in the current quarter by 220,000 bpd. It left its estimate of the scale of this year’s historic contraction in oil use steady at 9.47 million bpd.
To tackle the drop in demand, OPEC and its allies including Russia, a group known as OPEC+, agreed to a record supply cut of 9.7 million bpd starting on May 1.
The cut was tapered to 7.7 million bpd in August and OPEC+ plans further tapering next year by boosting supply by 2 million bpd from January.
In the report, OPEC said its output fell by 50,000 bpd to24.11 million bpd in September. That amounted to 104 percent compliance with the supply cut pledges, according to a Reuters calculation – up from August’s figure of 103 percent.
OPEC also forecast demand for its crude will be 200,000 bpd lower than expected next year at 27.93 million bpd.
Assuming global demand rebounds as expected, this in theory leaves room for OPEC members to increase output in 2021 by over 3.8 million bpd from September’s rate without causing a glut.