COVID-19: Attaining Oil market stability might be ruined by second wave


By Shorunke Tunde

The International oil market which is recently regaining its stability from the COVID-19 disruption might worsen if the second wave of the virus persist, Nigeran NewsDirect has gathered.

The Organisation for Petroleum Exporting Countries (OPEC+) is now eradicating its under-compliance to  boost oil markets stability, but fears of a second wave of COVID-19 cases are keeping a cap on oil prices.

The markets largely welcomed the move of easing of cuts from OPEC+, especially since it included pledges by laggards to temporarily keep some supply off of the market to compensate for past under-compliance. Meanwhile, EIA data also boosted sentiment. However, by the end of the week, concerns about slowing oil demand weighed on prices, keeping them stuck at around $40.

OPEC+ cut really deep in June, and the cohesion was maintained as the group moved to ease production cuts from 9.7 mb/d to 7.7 mb/d in August. However, the headline number is mitigated by the fact that the so-called laggards are supposed to “compensate” for overproducing in recent months. So, the effective production cuts may only decline to 8.1 to 8.3 mb/d in August instead of 7.7 mb/d.

Analysts mostly think that there is room for OPEC+ to increase production without leading to a slide in prices. After all, demand apparently outstrips supply at the moment. Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman said the increase will be “barely felt.” Still, significant downside risk remains, largely revolving around the potential hit to demand from the coronavirus and renewed closures.

U.S. gasoline demand fell 5 percent last week, the second consecutive week of declines. “Normally this two-week period would have been the peak demand period and we didn’t get it,” said John Kilduff, partner at Again Capital in New York. “The recovery has been unwinding.”

The Chief Executive Officer, Claudio Descalzi, said that it would pivot away from conventional oil refineries and instead invest in greener biorefineries. “Instead of slowing down, we see COVID-19 as a reason to accelerate the transition to low-carbon energy,”

China has $42 billion in clean energy debt. Built solar and wind so fast that the government owes $42 billion in subsidies for which it has not budgeted.

China’s oil imports may fall back. it imported a record amount of crude in May, but those oil flows fell back a bit in June, although remained above year-ago levels. The surge in imports filled up inventories, which may presage a slow down in further imports.

New subsidies for EVs in France and Germany have boosted sales. In Germany, an EV fetches a 9,000-euro subsidy. “There are a lot of attractive offers right now because of higher subsidies, and that’s boosting demand,” an analyst with BloombergNEF said. “The EU is pushing toward decarbonizing transport, and the coronavirus crisis has allowed them to accelerate that.”

More than 200 Pemex workers die of COVID-19. Pemex has the highest workplace death toll from COVID-19 than any other company in the world (not just among oil companies). An estimated 202 have died from the virus, a total that only the UK National Health Service – which isn’t a company – has surpassed.

Meanwhile, Total is now seeking buyer for North Sea gas pipeline. Total is now looking to unload its 25.7 percent stake in the Shearwater Elgin Area Line, which it hopes will generate $200 million.