Is crude oil demand expected to recover? The OPEC meeting released a positive signal!
On February 3, the OPEC Ministerial Joint Production Reduction Supervisory Committee (JMMC) stated after the meeting, saying that it was “optimistic” about the recovery of the oil market in 2021 and that it would continue to defend the results of the production reduction. Under multiple positive signals, crude oil prices in the international market remained stable.
The meeting conveyed to the market OPEC+’s determination to continue to maintain the scale of production reduction and stabilize the market. OPEC+ stated in a post-meeting statement that member states should remain vigilant and flexible under uncertain market conditions and continue to work hard to defend the hard-won production cut results.
The OPEC Ministerial Joint Production Reduction Supervisory Committee meeting is held once a month to review the production reduction status of oil-producing countries and adjust the extent of production reduction according to changes in the crude oil market. Earlier, OPEC+ reached an agreement in January that most member states will maintain a stable supply in February, while the major exporter Saudi Arabia will voluntarily reduce production by 1 million barrels per day. The meeting did not mention the need to change the production reduction policy. OPEC + oil-producing countries will continue to maintain the production reduction scale decided at the previous meeting.
According to reports, OPEC+ maintained a high implementation rate of production cuts in December 2020, and OPEC’s output growth in January was less than expected. According to a survey conducted by Reuters, OPEC’s average daily crude oil production in January was 25.75 million barrels, an increase of only 160,000 barrels from the previous month, while OPEC+ had previously decided to increase its January output by 500,000 barrels per day. The implementation rate of OPEC+’s production reduction in December 2020 is 99%, and the implementation rates of OPEC and non-OPEC production reduction countries in December 2020 are 103% and 93% respectively.
Judging from media reports, the biggest drop in OPEC+ production came from Saudi Arabia, whose January shipments fell by 688,000 barrels per day. The total shipments of crude oil and condensate shipped from Saudi Arabia, Iraq, UAE and Kuwait in January decreased by nearly 430,000 barrels per day compared with December. The UAE was the only country that increased shipments last month. On January 5, Saudi Arabia promised to reduce production by an additional 1 million barrels per day in February and March to help ease the imbalance between market supply and demand. These cuts came into effect on February 1st, boosting the upward momentum of oil prices in the international market.
The analysis believes that after Saudi Arabia’s voluntary production reduction quota plan expires in March, there may be new negotiations to determine the next OPEC+ production reduction scale.
Market participants believe that Saudi Arabia, as the actual leader of the OPEC Group, has pledged to substantially cut its own production to support the market. If they do not make such a decision, it is difficult to believe that oil will be traded at the current level while all other basic factors remain the same.
After the meeting, the Joint Production Reduction Supervision Committee stated that it is optimistic that 2021 will be a year of recovery. It believes that although the economic outlook and oil demand are still uncertain in the coming months, the gradual popularization of vaccines worldwide will boost the oil market for the rest of this year Positive factors, which will promote the growth of the global economy and oil demand.
OPEC believes that, according to the OPEC+ group’s expectations, the oil market deficit will reach a peak of 2 million barrels per day in May. By December 2021, global oil demand will be 97.9 million barrels per day. However, OPEC+ documents show that oil demand growth in 2021 is expected to drop to 5.6 million barrels per day, lower than the 5.9 million barrels per day in the January report. Despite lowering the expected speed of this year’s oil demand recovery, OPEC still predicts that the production cut will keep the oil market in short supply throughout the year.
In OPEC’s January monthly report, OPEC expects that in 2020, global oil demand will decrease by 9.75 million barrels per day, or 9.8%, to 90 million barrels per day. In 2021, global oil demand is expected to increase by 6.56%, an increase of 5.9 million barrels per day, reaching an average of 95.91 million barrels per day. The basis for this expectation is that thanks to the availability of viable vaccines and targeted stimulus measures, the US economy is expected to recover relatively well this year, which in turn will support future oil demand. Demand in Europe, Asia-Pacific and other regions will also There is a pick-up.
OPEC accounts for one-third of global crude oil production, and the remaining two-thirds of oil-producing countries partly participate in OPEC+. So far, OPEC+’s production reduction plan has affected. According to reports, substantial production cuts are reducing inventories. At the same time, crude oil prices in the international market have also reached their highest level since January last year.