28 February, 2021

A Crude Jolt

Lack of demand for oil since the Covid lockdown has put huge pressure on global oil producers

Photograph by Shutterstock
A Crude Jolt

In April this year, OPEC members and other exporters, from 23 countries, made an unprecedented pact of withholding about 9.7 million barrels per day (mb/d) from global supply to balance oil markets in view of the demand des­truction unleashed by the Covid pandemic. The cuts were tapered down in August to 7.7 mb/d, with a view to further cut it to 5.7 mb/d in January next year. The assumption was that some of the global demand would bounce back by then.

The big question in the oil sector is whether the OPEC+ cartel, which is scheduled to meet on October 19, will ease the existing global supply cuts in January. This will impact crude prices and have ricocheting effects in other sectors. The contours of three variables—a still-un-reined COVID-19 pandemic, the still-brimming oil inventories and the impending US elections—show that adding 2 mb/d oil in the global pipelines may only lead to unsustainable balance sheets for many of the OPEC members.

A second wave of the novel coronavirus pandemic has hit parts of Europe, like Spain, France, Germany,...

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