Adedapo Adesanya
By Adedapo Adesanya
Last week, prices of both the Brent crude and the US West Texas Intermediate (WTI) crude initially dropped on oil demand recovery worries but eventually turned around to show signs of resilience yet again.
Following this positive outcome at the oil market, things could be very difficult for the market this week as one of the major factors that have lifted prices may be eased.
The production cuts from the Organisation of the Petroleum Exporting Countries and its allies (OPEC+), which just did not only remove crude oil from an oversaturated market but eventually helped to boost prices, may start tapering to allow for an increase in production to allow countries fight for market share.
When the cabal started cutting outputs in May, the agreement was to reduce almost 10 per cent or 9.7 million barrels daily for two months including June. However, there was an extension to this to July.
However, analysts note that this may not extend into August with cuts expected to taper to 7.7 million barrels per day through December. According to Wall Street Journal sources, the countries are planning to relax the curbs by 2 million barrels a day to 7.7 million.
The report said that Saudi Arabia was worried as continued support will be dangerous, especially as non-OPEC members attempt to gain market share.
The report came two days after the Energy Information Administration (IEA) said that the worst effects of coronavirus on oil demand had passed but will continue to echo as the market recovers.
The group will hold a virtual meeting on Wednesday to discuss and recommend the next line of action.
In its monthly global energy report, the IEA predicted a slight improvement in global demand for crude oil this year.
However, it also cautioned that much still depends on how the pandemic develops.
The IEA report also noted that the resurgence of cases in some parts of the world, including the US and Latin America, was casting a shadow over the outlook and threatened to derail a recovery in demand.
“The recent increase in COVID-19 cases and the introduction of partial lockdowns introduces more uncertainty to the forecast,” it said.
The number of new COVID-19 cases continue to rise in the major producing country, the US, as the state of Florida soared by 15,299 cases on Saturday. This set the record for the highest COVID-19 cases in the country in a single day for any US state.
The rising number of cases impairs economic recovery and oil demand in the world’s largest oil-consuming nation and curtails crude prices.
On the supply side, more risks of additions to the supply glut have arisen with Libya’s preparations to restart oil production and exports, which also poses a threat to the oil price recovery.
The number of oil rigs in the US, an indicator of short-term production in the country, fell by 4 to 181 for the week ending July 10, from 185 the previous week, according to the latest data. Over the past 17 weeks, the decline in the oil rig count totalled 502, the data showed.
