Page 4 - FSUOGM Week 42

FSUOGM COMMENTARY FSUOGM

OPEC+ warns of oil

surplus in 2021

A sustained second wave of coronavirus and a surge in Libyan output pose
threats to the market's recovery

OPEC RUSSIA, Saudi Arabia and other members of the cases across the world and prospects for par-
OPEC+ oil alliance have warned that a sustained tial lockdowns in the coming winter months
WHAT: second wave of the coronavirus (COVID-19) could compound the risks to economic and oil
OPEC+ has warned of pandemic and a surge in Libyan output could demand recovery,” the document stated.
a potential surplus in oil push the oil market back into surplus next year. The base-case scenario set out in the docu-
supply next year. A panel of officials from the 23 OPEC+ ment forecast that supply would still see a 2021
member countries, known as the Joint Techni- deficit of around 1.9mn bpd, although this was
WHY: cal Committee, held a virtual monthly meeting less than the 2.7mn bpd deficit forecast a month
The group's joint on October 15. They considered this renewed earlier. But the worst-case scenario warned of a
technical committee surplus to be a worst-case scenario, Reuters swing to a 200,000 bpd surplus.
says this worst-case reported citing a confidential document. They Another threat comes from Libya, the com-
scenario could occur if had ruled this out as a possibility in their Sep- mittee said, where output has been rising since
the coronavirus is not tember meeting. a blockade of exports by rebel forces was lifted
brought under control OPEC+’s unprecedented cuts to production last month. Libya is an OPEC member but was
and Libyan output surges. since May have been critical in rebalancing exempted from cuts because of its civil war.
global supply with demand since the coronavi- OPEC+’s worst-case scenario sees the country’s
WHAT NEXT: rus pandemic struck. But the cartel brought back production rising to as much as 1.1mn bpd in
OPEC+ could agree to some 2mn barrels per day of output in August, 2021 if the ceasefire is maintained, while its
delay the tapering of cuts easing total cuts to 7.7mn bpd. They had hoped base-case envisages a growth to only 600,000
when its oil ministers to taper the cuts by a further 2mn bpd at the start bpd.
meet at the end of of 2021, but a looming surplus could threaten There were fears of oil storage running out of
November. these plans. space in many regions at the height of pandemic
OPEC+ is yet to signal that it is considering lockdowns, and storage levels would once again
such a step. swell if a surplus emerged next year. OECD com-
“In particular, a resurgence of COVID-19 mercial oil inventories will remain higher than

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