Demand for oil continued to grow but edged lower ahead of the first trading day of 2021. Mohammad Barkindo, secretary-general of the Organisation of the Petroleum Exporting Countries, warned that while oil demand was expected to rise by 5.9m b/d to 95.9m b/d this year, there was still plenty of room for prices to fall and demand risks in the first half of the year were too great to ignore. OPEC, which met earlier to discuss production levels for February, is also concerned that demand risks will seep into the market in the first half of the year as COVID-19 intensifies.
U.S. oil futures rose 0.61 percent to $49.13 and U.S. oil futures rose 0.70 percent to $52.50 as of 11:35 Hong Kong time. West Texas Oil was flat at 48.32 and Brent rose 0.50 percent to $50.86.
“The impact on us is only now emerging and we will continue to suffer from massive investment cuts, massive unemployment and the worst oil demand destruction in history,” He warned. By the end of 2020, oil prices will be about 20% lower than their 2019 average. “While the world’s major producers have agreed to record production cuts throughout the year, we are still slowly recovering from the global economic shock of the COVID-19 outbreak.” OPEC and other producers, including Russia, which made up OPEC+, decided at their December meeting to raise production by 500,000 barrels in January in anticipation of higher demand and agreed to meet monthly to review production.
Both Energy Aspects and RBC Capital note that the decision will likely maintain January production levels in February. RBC Capital analyst Helima Croft said: “We believe that producer groups will choose to forgo any further production growth in February as the number of confirmed cases of COVID-19 is climbing and the vaccine rollout is much slower than expected. A government report on January 1 showed that crude oil production in the United States continues to be under pressure from weak prices and weak demand, with production down 2 million barrels a day at the start of the year compared with October.”
“As the market prepares for OPEC to move forward and put more oil on the market, the headwinds for prices remain high,” said John Kilduff, a partner at Again Capital LLC.
‘Between now and the end of the year I see a very quiet market, but the direction will be downwards in the next few days because of the new strain,’ said Howie Lee, an economist at Oversea-Chinese Banking Corp., in an analysis late last year.
Non-opec oil and gas supplies are increasing, putting additional pressure on OPEC’s share of the world’s crude production supply. OPEC controlled about 70 percent of the world’s oil supply in the 1970s, but that market share has been declining since early on. OPEC’s market share averaged 31 percent in 2019, falling to 29.5 percent in October 2019, breaking the 30 percent threshold for the first time. Turmoil in Venezuela and Libya, along with instability and sanctions in Iran, and repeated cuts in production based on the Declaration of Cooperation, will only further erode Opec’s market share and do little to restore global oil prices.
OPEC’s forecasts suggest that its market share will continue to decline, and in fact most OPEC members, such as Guinea, Gabon and Angola, are facing maturing oilfields and declining output as they struggle to maintain current production levels. Other major producers such as Venezuela, Libya and Iran are in the midst of severe political and social unrest and face sanctions that severely limit their ability to increase production and export. OPEC crude oil and gas production is expected to decline over the next five years, from about 35 million barrels a day in 2019 to about 32.8 million barrels a day in 2024. Notably, Ecuador’s secession in January 2020 prompted OPEC to cut its share of consumption by 500,000 b/d.
Although the declaration of cooperation is a relatively effective and honest demonstration of the power of international energy cooperation. But it also illustrates the limits of OPEC’s role as a single organization. The cooperation declaration follows a joint OPEC meeting in November 2016, at which members agreed to adjust production by 1.2 million barrels per day starting in January 2017, and was subsequently agreed at a joint MEETING of OPEC and non-OPEC producers.