By Adedapo Adesanya
Prices of crude oil went southwards on Wednesday as the Organisation of the Petroleum Exporting Countries (OPEC) revised down its 2021 forecast for global oil demand.
At the market yesterday, the Brent crude dropped 60 cents or 0.94 per cent to trade at $63.54 per barrel, while the West Texas Intermediate (WTI) dropped $1.22 or 2.01 per cent to sell at $59.33 per barrel.
The Joint Technical Committee (JTC) of the producers’ alliance at the beginning of the monthly OPEC+ meetings to decide how to proceed with the production cuts in May revised down its global demand for oil by 300,000 barrels per day.
The most recent edition of OPEC’s Monthly Oil Market Report projected a growth of 5.1 per cent in 2021, while world oil demand is estimated to rise by 5.9 million barrels per day. However, the JTC’s base-case scenario now forecasts demand growth of 5.6 million barrels per day, down by 300,000 barrels per day.
There are also expectations that the global oil supply will rise by 1.6 million barrels per day this year, 200,000 barrels per day higher than its previous supply growth estimate.
The decision is coming in light of the renewed lockdowns in Europe amid a third wave of the pandemic.
Market participants are expecting the decision from Thursday’s meeting in which the group will continue its effort to rebalance the market through its cuts. There has been a solace in the fact that Saudi Arabia is seeking to extend current OPEC+ production cuts over May and June and also keep cutting one million barrels per day in oil output unilaterally.
Another such decision being expected is from Russia, the co-Chair of the alliance. Reports indicate that it is favouring a rollover of the cartel’s oil production cuts, but it is seeking a slight increase for itself to meet higher domestic seasonal demand.
The uncertainty around this made the market overlook the surprise draw in crude inventories in the United States as the Energy Information Administration (EIA) reported a drop of 900,000 barrels.
The report comes a day after the American Petroleum Institute reported an estimated build of 3.9 million barrels in crude oil and compared with a more moderate build of 1.9 million barrels per day that the EIA reported for the previous week.
Analysts had expected an even more modest inventory build for last week, at 400,000 barrels.
Lockdowns in Europe are also adding to the bearish environment for the black gold as France announced a nationwide four-week lockdown, closing schools and business. It joined Italy and Germany, which extended their partial shutdowns well into April.
The resurgence in the region’s outbreak is a setback for governments, whose plans to get life back to normal and revive their economies have already been drawn back by a slow vaccine rollout across the European Union.