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Thursday, May 23, 2024

OPEC observes oil market is under abrupt stress, supply will be disrupted

OPEC has estimated that despite the oil-price deal between Saudi Arabia & Russia, the oil market is facing a shock and supply of oil will remain disturbed. Oil supply is disrupted by the US shale companies forcing OPEC to cut production. What implications this will have on Pakistan? Will Pakistan be able to maintain supply of oil to industries & transport sector?

The OPEC oil cartel said Thursday that the world market for crude is undergoing an unprecedented jolt due to coronavirus mitigation measures that have decimated demand.

“The oil market is currently undergoing a historic shock that is abrupt, extreme and at a global scale,” said the group of producer nations in its latest monthly report.

The cartel now forecasts a “historical drop” of around 6.8 million barrels per day (mbd) in average daily demand for 2020.

It sees the worst contraction of about 20 mbd in April.

Those forecasts are less severe than those released on Wednesday by the International Energy Agency, a Paris-based organization that advises major energy-consuming nations.

It forecast the drop in demand in April to be around 29 mbd, and 9.3 mbd overall in 2020.

OPEC and its allies struck a deal at the weekend to scale back output by around 10 mbd, but oil prices have not rallied as traders see it as insufficient given the magnitude of the drop in demand.

OPEC also revised down its forecasts for non-cartel supplies.

It now sees these as falling by 1.5 mbd for the year as a whole.

The cartel had previously expected the United States to have been responsible for most non-cartel production growth but now forecasts US output to drop by 0.15 mbd.

Read more: Oil-heavyweight Shell asserts to become carbon neutral by 2050

The rise of US oil production thanks to the tapping of shale deposits has disrupted the global markets in recent years as ample supplies have weighed on prices, forcing OPEC and its allies to restrain production.

The rapid drop in oil demand thanks to the lockdowns introduced to stem the spread of coronavirus saw crude prices tumble by two-thirds from their levels at the beginning of the year has also hit investment.

“These restrictions have led to tumbling fuel consumption, amid product inventory builds, severely damaging jet fuel markets and driving gasoline margins into negative territory,” said the cartel.

Read more: Production cuts by oil producers not helping: oil prices at lowest since 2002

OPEC said capital expenditure — money spent by oil firms to maintain and expand production — fell to its lowest level in 13 years.

“The impact of COVID-19, ensuing global economic recession and oil demand shock, will also lead to supply disruptions,” OPEC warned.

AFP with additional input from GVS News Desk.