OPEC Downward Demand Review Hurts Oil Prices Monday

By Adedapo Adesanya

The oil market was bearish on Monday on the back of additional worries as the Organization of the Petroleum Exporting Countries (OPEC) further reduced its outlook for demand growth.

The Brent crude futures dropped 22 cents or 0.54 per cent to trade at $39.61 per barrel while the US West Texas Intermediate (WTI) crude futures went down by 6 cents or 0.16 per cent to $37.29 per barrel.

OPEC, in its monthly report on Monday, said it now expects 2020 oil demand to contract by 9.5 million barrels a day to 90.2 million barrels a day versus its previous call for a 9.1 million barrel-a-day fall.

That’s down 400,000 barrels per day from the previous month’s estimate and reflects a contraction of 9.5 million barrels per day year-on-year.

The report came as energy market participants become increasingly concerned about a faltering economic recovery and stumbling fuel demand in the wake of the coronavirus pandemic.

The organisation also lowered its outlook for demand growth in 2021, citing the lingering effects of the coronavirus.

OPEC now expects global oil demand to grow by 6.6 million bpd to an average of 96.9 million bpd next year. This updated forecast was also 400,000 barrels per day lower than its previous estimate.

Also weighing on prices was the decision of Libyan commander, Khalifa Haftar, to halt a blockade of the oil-exporting nation’s ports, which analysts said could mean addition to the glut of oil facing the world.

If Libya’s production comes back online soon, the global oil market will be looking at about 1 million barrels per day or more as the country will be exempted from any cuts.

This is coming at a time when OPEC, alongside non-OPEC allies, a group known collectively as OPEC+, has agreed to cut output by 7.7 million barrels per day until December.

This week will see the alliance meet on September 17 to discuss oil production policy.

Furthermore, the market has been weighed down by concerns that oil demand recovery is slowing due to a resurgence of coronavirus infections globally. COVID-19 cases are rebounding in the UK and France, with the number of daily cases reported exceeding 3,000 cases in the UK and 10,000 cases in France.

The uptick in cases has increased the likelihood of another lockdown being implemented across Europe.