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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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OPEC Is Betting Big On Robust Oil Demand Recovery

Last week’s surprise decision from OPEC+ to ease the production cuts by a cumulative 2 million barrels per day (bpd) by July relies on expectations of robust oil demand recovery in the second quarter. Yet, recent demand concerns suggest the alliance’s supply management policies could once again be more in the realm of guestimates.

The easing of the collective cuts by over 1 million bpd over the next three months, plus Saudi Arabia reversing gradually its extra 1 million bpd cut signal that OPEC+ expects demand to rebound strongly and justify supply increases, Reuters columnist Clyde Russell writes.       

However, the unpredictability of the COVID resurgence in major economies lagging behind in vaccination programs could spoil the OPEC+ forecasts and supply management policies once again.

Last week, OPEC+ decided to gradually increase collective oil production by 350,000 bpd in each of May and June and by more than 400,000 bpd in July. Additionally, Saudi Arabia will also gradually ease its extra unilateral cut of 1 million bpd over the course of the next few months, beginning with monthly production increases of 250,000 bpd in each of May and June.

Although the initial knee-jerk reaction to the outcome of the OPEC+ meeting on Thursday was heavy selling in oil because additional supply is coming, prices finished strong that day with more than 3-percent gains as the market realized that OPEC+ expects strengthening of oil demand with its decision to put more crude on the market. 

Asia’s demand for crude looks strong as gasoline demand looks robust, but demand for diesel and jet fuel is still soft, according to Reuters’ Russell.

India, the world’s third-largest oil importer, added another scare to oil demand forecasts this week, with a record-high number of new COVID cases and a lockdown in the biggest city, Mumbai.

Most analysts continue to believe that the market will be able to absorb the new barrels from OPEC+ with strengthening demand going into the summer months. Goldman Sachs, for example, is still bullish on oil and anticipates strong demand that would require OPEC+ putting another 2 million bpd on the market in the third quarter, after the around 2 million bpd that the alliance and Saudi Arabia decided to return between May and July.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on April 06 2021 said:
    And rightly so. After all OPEC+ decision Last week to gradually increase collective oil production by 350,000 barrels a day (b/d) in each of May and June and by more than 400,000 bpd in July was a vote of confidence in a robust recovery of the global oil demand this year.

    OPEC+ has been an astute reader of the global oil market and has been proven right time and again. Moreover, it is confident that the market could absorb a gradual easing of both its production cuts and also Saudi Arabia’s extra unilateral cut of 1.0 million barrels a day (mbd) over the course of the next three months.

    There are hopeful signals from around the world to support OPEC+’s optimism. China’s economy is projected to grow by 8.1% this year according to the International Monetary Fund (IMF). Meanwhile, the United States’ economy is showing signs of growth as well. Moreover, the IMF has lifted its global economic growth forecast to 6% this year and to 4.4% in 2022 in its April World Economic Outlook (WEO) published today.

    There is, however, some concern about a slowdown in economic growth in the European Union (EU) but this will end once the rollout of vaccines in the EU gains momentum.

    Brent crude could be projected to hit $70-$80 a barrel in the third quarter of 2021 and average $65 during the year with global oil demand retuning to pre-pandemic level of 101 mbd by the middle of the year.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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