OPEC Pessimistic Forecast on Global Petroleum Demand

The Organization of Petroleum Exporting Countries (OPEC), an association of the largest oil-producing countries in the world, amidst the coronavirus crisis, has shifted to a slower recovery. Recently the sluggish forecast in global economic recovery and after the OPEC and 10 of its associates' slow production increase. With Brazil, Canada, and the US gradually rising oil production, the oil price may take a longer time to recover.

Last September 14, OPEC released their latest readjusted oil market forecast. The global demand projection for 2020 is at 400,000 barrels per day, and in 2021, 770,000 barrels per day. Moreover, non-OPEC members expect to increase production more significantly than in the previous forecast. At the same time, the projected global economic growth for 2020 is at -4 percent.

Such a depressing economic scenario exerts pressure among the OPEC+ alliance members to remain disciplined in their desire to hasten the recovery of oil prices. Last May 2020, OPEC+ and Russia successfully coordinated the reduction of oil production to 9.7 million barrels per day. Similar to the 10% cut on output during the pre-pandemic demand, hitting rock bottom price, which assisted the Brent prices in tripling to its lowest price last April at $39 per barrel. Gradually in August, OPEC+ slowly increased production to 7.7 million barrels per day until the end of the year. But will cut output to 5.8 million barrel per day starting January 2021 until April 2022.

Meanwhile, last July, the OECD commercial oil inventories decreased to 3.231 billion barrels, which is considered 260.6 million barrels more based on the targeted OPEC + alliance five-year average production cut. While the coronavirus infection rates increase, OPEC added that the near future economic outlook appeared uncertain as India's economic slowdown is far from over. With this scenario, OPEC expects a more significant fiscal stimulus is required.

S&P Global ratings on September 14 released a new forecast for the Indian economic growth to minus 9 percent from minus 5 percent. Moreover, OPEC forecasted global demand for its oil for 2020 at 22.61 million barrels per day, lower than 750,000 barrels per day than the earlier forecast.

On average, last August, OPEC produced 24.05 million barrels per day based on an independent source, which was a 760,000 barrels per day increase from July. The steady oil price recovery into 2021 dramatically depends on the increasing global demand and OPEC + faithfully abiding by agreed production adjustment. Until when the Pandemic lasts, uncertainty remained high.