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Paul Putnam, 53, an independent contract breeder and pumper walks past a pump jack in Loving County, Texas on November 25, 2019.
Angus Mordant | Reuters
LONDON – OPEC on Wednesday reduced its forecast for global oil demand for the remainder of this year and 2021, citing weaker-than-expected economic prospects and a surge in coronavirus cases.
In a carefully observed report, the group of oil producing nations said it now expects world oil demand to contract by approximately 9.8 million barrels per day year over year in 2020. This reflects a downward revision of 0.3 million barrels compared to last month’s valuation.
For next year, OPEC said oil demand growth will increase by 6.2 million year-on-year, representing a downward revision of another 0.3 million barrels from its October report. The group has steadily lowered its oil demand forecast for 2021 from an initial expectation of 7 million in July.
“These downward revisions mainly take into account the downward adjustments of the economic outlook in OECD economies due to COVID-19 containment measures, with the related negative impacts on transport and industrial fuel demand until mid-2021” OPEC said in the report.
The report precedes the group’s meeting on November 30 and December 1 with non-OPEC allies to discuss the next phase of oil production policy.
The energy alliance, a group known collectively as OPEC +, had agreed on a record cut in supply of 9.7 million barrels per day as of May 1. The cut was subsequently scaled back to 7.7 million in August, and OPEC + said it expects further tapering next year.
“The risks remain”
A demand shock caused by the coronavirus saw oil prices plummet in 2020, with strict public health measures coinciding with reduced travel and economic activity.
An easing of blockade measures in the third quarter helped improve global oil demand, but OPEC now fears that an increase in the number of reported Covid-19 cases could derail an expected recovery.
“As new cases of COVID-19 infection continued to rise in October in the United States and Europe, forcing governments to reintroduce a series of restrictive measures, various fuels, including transportation fuel, are believed to be they will bear the brunt of it in the future, “OPEC said.
Organization of Petroleum Exporting Countries – The OPEC logo is visible on the organizations headquarters in Vienna, Austria.
Jakub Porzycki | NurPhoto | Getty Images
International benchmark Brent crude futures traded at $ 44.84 a barrel on Wednesday afternoon, up about 2.8%, while US West Texas Intermediate futures traded at $ 42.52, also in increase of 2.8%.
Both oil contracts were on track to record their third consecutive positive trading session after hopes for an effective coronavirus vaccine continued to bolster market sentiment.
Pfizer and BioNTech said on Monday that early results showed their vaccine candidate was over 90% effective in preventing Covid infections. It is hoped that a safe and effective vaccine can help end the coronavirus pandemic that has claimed over 1.27 million lives.
Huge challenges remain before a Covid-19 vaccine can be launched, but energy markets have cheered the news.
Looking ahead, OPEC warned that “risks remain” in regards to oil demand.
“Ongoing developments in the COVID-19 pandemic will continue to dominate a recovery among the latest news regarding a potential upcoming vaccine,” the group said.
“The structural impact of the pandemic on various sectors, in particular the transport sector, will last until 2021”.
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