By Adedapo Adesanya
Prices of crude oil further increased at the market on Tuesday as a result of the renewed confidence investors have that the deadly COVID-19 could soon be defeated due to the outcome of the vaccine trials.
This boosted the market coupled with the possibility of tighter supply policies from oil producers aimed to suppress the threats posed by the rising coronavirus cases in Europe and America.
During trading yesterday, the Brent crude moved up by 0.07 per cent or 3 cents to sell at $43.85 per barrel, while the West Texas Intermediate (WTI) crude appreciated by 0.22 per cent or 10 cents to trade $41.43 per barrel.
On Monday, the oil space got a boost when Moderna Inc’s announced that its coronavirus vaccine was 94.5 per cent effective. The information came some days after Pfizer Inc also said its vaccine was over 90 per cent effective.
However, developments from the United States over the average number of people dying of COVID-19 daily threatened the market just like the fresh movement restrictions in Europe.
But the market remains hopeful as Saudi Arabia called on fellow members of the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) to be flexible in responding to oil market needs as it builds the case for a tighter production policy in 2021.
It was reported that the oil cartel is considering four possible scenarios for 2021. Two of these are based on following the initial arrangements, including a further relaxation of cuts from 7.7 million barrels per day to 5.8 million barrels per day from January.
Under these two scenarios, the drawdown in global oil stockpiles will continue, but the total will remain well above the five-year average.
In the milder pandemic effect scenario, oil inventories will be 125 million barrels higher in 2021 than the five-year average, and in the more severe pandemic effect scenario, these will be 470 million higher than the five-year average. This will translate into an excess supply of 1.9 million barrels per day.
An option gaining support among OPEC+ nations is to keep the existing cuts of 7.7 million barrels per day (bpd) for a further three to six months rather than tapering in January.
But looking at tougher production restrictions scenarios, the drawdown will be more significant: if the deal is extended by three months, until the end of March, global inventories will only end up being 73 million barrels higher than the five-year average by the end of 2021.
However, if the cuts are extended until the end of June, the total supply will be just 21 million barrels, higher than the five-year average. These figures translate into a daily supply deficit of between 900,000 barrels per day and 1.4 million barrels per day, according to analysts.
OPEC+ held a ministerial committee meeting on Tuesday that made no formal recommendation. The group will hold a full meeting on November 30 – December 1.
The market will await official figures from the Energy Information Administration (EIA) in the United States on Wednesday as analysts said crude inventories likely rose 1.7 million barrels last week after gaining 4.3 million barrels in the prior week.
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