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.
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