Oil declines on OPEC+ expected output increase while Covid-19 slows demand recovery

"It’s OPEC+ meeting today and the expectation is that the record oil output cuts that the alliance had so far been implementing will shrink by 2 million bpd.

If OPEC+ proceeds to reduce production curtailments, this should not come as a surprise, that was the plan on the first place and it should have already been priced in.

Traders did not expect the last moment to take it into account.

The difference now, and the reason prices are moving lower today, is that the transition to higher production coincides with a move back to movement restrictions in populous US states and other countries around the world.

Increasing the production was planned to coincide with an increase in demand. But Covid-19 is now putting a shadow over the demand recovery, which is expected slower than what the market expected when the OPEC+ deal was in the making.

In the current market, 2 million bpd is a significant amount, and traders can add to that the unspoken reactivation of shut-in wells from non-members amid the healthier 40-dollar price levels.

In simple words, the world is about to increase oil production, but demand is now projected to recover in a slower pace. Where will extra oil go now if people are ordered back to their homes to reduce spread? If transport is again restricted. It was road fuel demand that ticked up and moved the market in the first place.

It remains to be seen if the OPEC+ meeting holds any surprises but it is highly unlikely that the alliance will again take the biggest burden to save the global oil market.

But don’t forget, even if the plans proceed as agreed, OPEC+ will still be cutting 7.7 million bpd. That’s much and still a balancing power to keep prices healthy."

Read the article online at: https://www.oilfieldtechnology.com/special-reports/14072020/oil-declines-on-opec-expected-output-increase-while-covid-19-slows-demand-recovery/