You are here: Home » International » News » Economy
Business Standard

OPEC+ oil output boost to leave market in precarious balance, IEA says

At the same time, markets are set to receive fresh supplies in January as OPEC and its partners relax some of the measures they've taken to prevent a glut

Topics
OPEC | OPEC output | IEA

Grant Smith | Bloomberg 

Crude oil
The acceleration in virus infections is leading many in the market to question if the Organization of Petroleum Exporting Countries and its allies will increase supply from January

The outlook for “remains fragile” as the pandemic depresses demand, and OPEC’s plans to increase supply next year will leave global markets precariously balanced, the Energy Agency said.

“There is a risk that the demand recovery is stalled by the recent increase in Covid-19 cases in many countries,” the said in its monthly market report.

At the same time, markets are set to receive fresh supplies in January as and its partners relax some of the measures they’ve taken to prevent a glut. Once the taps are opened, “there is only limited headroom for the market to absorb” anything more, the Paris-based agency said.

The acceleration in virus infections is leading many in the market to question if the Organization of Petroleum Exporting Countries and its allies will increase supply from January. Producers inside the group are also having doubts, according to delegates. Still, United Arab Emirates Energy Minister Suhail Al Mazrouei said on Tuesday that, for now, OPEC+ plans to proceed with the supply boost as scheduled.

Global demand remains on track for an unprecedented 8 per cent slump this year because of the economic fallout from the virus. To offset the drop, and prop up prices, the OPEC+ alliance led by Saudi Arabia and Russia has made vast reductions in output.

Also see: Saudi Prince and Putin Urge OPEC+ Compliance as Prices SagTheir measures have “shown some success,” depleting the world’s swollen inventories in the third quarter at a rate of 900,000 barrels a day, the said. Crude futures are hovering just above $40 a barrel in London.

Inventory Drop

Yet the declines in inventories will slow markedly in the first half of next year, the report showed.

Having phased out some of the biggest supply cutbacks in August, OPEC+ is due to ease them further. The 23-nation group will add about 1.9 million barrels a day in January, under the terms of an agreement set up earlier this year, in anticipation of stronger demand.

When those additional barrels arrive, stockpile drawdowns will decelerate. Weakening prices in the physical crude market, where real cargoes are bought and sold, suggest that the balance could easily be tipped if demand slows further or other producers raise output, the said.

“The uncertain outlook that could see the drawdown of stocks falter is reflected in the fact that physical prices have weakened,” it said.

There has been a surprise return of output from nation Libya, after a military commander allowed exports to resume. The IEA expects output from the nation -- which is exempt from production quotas -- to soar to 700,000 barrels a day in December from 140,000 last month.

OPEC+ nations are due to meet on Monday and discuss the outlook for the market, before finalizing their plans at the end of November.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Thu, October 15 2020. 01:12 IST
RECOMMENDED FOR YOU
.