By Adedapo Adesanya
Brent crude returned to the $42 mark on Friday as the oil futures depreciated on the back of the ongoing spread of coronavirus, which has dampened the demand outlook, by extension the mood of the market.
Brent, against which most countries price their crude, moved down by 1.86 per cent or 82 cents to sell at $42.71 per barrel, while the United States’ futures, West Texas Intermediate (WTI) crude, made a 2.41 per cent or 99 cents slide to $40.31 per barrel.
Depressed prices came on the back of a surge in European coronavirus cases with several countries in partial lockdowns and many hoping that restrictions will begin to have an effect as intensive care units fill up.
Countries like Belgium, Germany, Czech Republic, Spain, Poland, Austria and France have experienced spikes while Italy has recorded more than 30,000 new daily cases on three occasions in the last few days, and currently has close to 800,000. Its death toll is the second highest in Europe after the United Kingdom at more than 40,000.
There are also a growing number of cases in the US, Japan and South Korea, all of which are major oil consumers.
Further adding to the negative outcome was the downward review of demand outlook by the International Energy Agency (IEA) and the Organization of Petroleum Exporting Countries (OPEC) this week.
The Paris-based IEA cut its 2020 global oil demand forecast and now expects world oil demand to contract by 8.8 million barrels per day this year.
The agency further added that it does not expect the prospect of a coronavirus vaccine to significantly boost demand until well into next year. For 2021, the IEA said world oil demand growth will rise by 5.8 million barrels per day, representing an upward revision of 300,000 barrels per day from last month.
For yet another month, OPEC revised down its expectations for global oil demand as the renewed spike in coronavirus cases in major economies is slowing down the oil demand recovery.
In its Monthly Oil Market Report (MOMR), the cartel cut its global oil demand forecast for this year by 300,000 barrels per day compared to last month’s estimate and now sees global oil demand at slightly above 90.0 million barrels per day this year, down by 9.8 million bpd compared to 2019.
The main reasons for the expected even lower demand for this year are the recent new lockdowns and curfews in many major European economies as well as weaker-than-expected demand in the developed economies in the Americas in the third quarter of 2020.
The weaker oil demand recovery is expected to continue into 2021, according to OPEC, which cut its estimate for global oil demand next year, too. In 2021, oil demand is expected to grow by 6.2 million barrels per day compared to 2020. This is a downward revision of 300,000 barrels per day compared to OPEC’s October forecast.
Next year, total global demand is expected to reach 96.3 million barrels per day, still lower than the demand before the pandemic.
At the same time, supply is rising as Libya opens the taps. The country’s production rose to 1.145 million barrels a day on Friday, according to a spokesman for its state-run National Oil Corporation (NOC)
However, the silver lining still remains as vaccines may roll out soon following announcement from Pfizer and BioNTech earlier in the week. This indicates that there are hopes that a safe and effective vaccine would help bring an end to the coronavirus pandemic that has infected more than 53.1 million and claimed over 1.3 million lives.
Dipo Olowookere