OPEC+ recently said in a report that uncertainties linked to the advance of the COVID-19 pandemic may impact recovery in oil demand.
After a meeting on Tuesday, the Joint Technical Committee commented in a report that the prevailing volatility in the market structure signals fragile market conditions.
This shouldn't be surprising, considering the recent surge in the number of cases in both the United States and Europe and the slow vaccine rollout in Europe. So far, 128,839,812 COVID-19 cases have been reported around the world as well as a death toll of 2,816,997.
Recently, the committee revised down its demand growth estimate for this year, claiming that its previous projection was over-optimistic. Previously OPEC expected global oil demand to rise by 5.9 million barrels a day, but now claims that this forecast needs revision.
"We considered that the figures on the demand side need to be revised to take into account the latest developments on the market and not the sentiment of the first of March," commented one OPEC delegate.
In order to avoid the fall in oil prices, OPEC+ members have to comply with supply cuts, which are now expected to be extended given the current situation. OPEC members' compliance with supply cuts stood at 124% in February, rising to 3 million barrels per day from 2.8 million in January. OPEC+ adherents' compliance stood at 113%.
According to media reports, OPEC+ leader Saudi Arabia is ready to extend the supply cuts over May and June as well as continuing to cut around 1 million barrels per day as part of a unilateral move. Russia is also expected to push for production cuts, though it is seeking an increase for itself in order to meet seasonal demand requirements.
OPEC+ members are set to meet again on Thursday. Now that OPEC+ is no longer optimistic about oil demand recovery, analysts expect the group to continue pushing for supply cuts.
“The expectation is OPEC+ is going to show supply discipline, so that’s pivoting the market,” commented an analyst at Commonwealth Bank Commodities. “Given what’s happened since then, the rationale is even less so to add supply. So we think they’ll maintain that discipline in that meeting,.”
Another fact backing the supply cuts urge is the rise in US crude supplies. The American Petroleum Institute recently reported that US crude oil stocks went up by 3.9 million barrels, surpassing analysts' forecasts.
Oil markets have been suffering from volatility lately, mainly due to the dislodging of the Ever Given ship, which was blocking the Suez Canal and causing disruptions in the global supply chain. Yesterday, West Texas Intermediate Crude Oil futures fell by 1.64% during the session, closing at the 60.55 level, followed by Brent oil futures, which fell by 1.29%, closing the session at the 64.14 level.
By 8:20 GMT, West Texas Intermediate Crude Oil futures rose by 0.36%, hitting the 60.80 level, followed by Brent oil futures, which gained 0.41%, hitting the 64.43 level.