OPEC+ to proceed with increasing oil supply regardless of outbreak in India
The world’s key crude exporters will start increasing supplies in May hoping that a recovery in China and the United States will outweigh India’s declining demand suppressed by a severe outbreak of COVID-19.
OPEC and its allies recommended proceeding with plans to gently revive oil production despite surging infections in India, says World Oil citing Bloomberg. The coalition decided to skip a full-scale meeting scheduled for Wednesday and continue implementing its road map for increasing supply. OPEC+, which is currently limiting aggregate oil output by around 8 million bpd, or roughly 8% of world supplies, intends to increase production by about 2 million bpd over the next three months. An initial increase of about 600,000 bpd is scheduled for May.
According to a forecast of the Joint Technical Committee of OPEC+ published on 26 April, global oil consumption will rebound by 6 million bpd this year. The committee expects global oil inventories to decline at an average rate of 1,2 million bpd this year, while a month ago, they projected a slower drawdown of 800,000 bpd. Thus, the existing glut of oil inventories will be almost gone by the end of this quarter.
“We can take comfort in knowing that our leadership has helped turn the tide,” commented Secretary General of OPEC Mohammad Barkindo on Twitter. “But at the same time, the persistence of COVID-19 reminds us that this is no time to stray from the cautious and steadfast approach we have taken over the past year.” Russia’s Deputy Prime Minister Alexander Novak also stated that OPEC+ must keep monitoring the coronavirus situation across many regions, including Asia, despite the current optimism in the oil market.
The recovery remains at risk due to virus outbreaks in India and Brazil. India, which is the world’s third-biggest oil importer, has seen a record number of new infections this month. OilX data provider estimates that the outbreak may cut the country’s fuel demand by some 350,000 bpd in April. However, the recovery in China and the US is currently eclipsing lower demand in India, according to an anonymous senior OPEC+ delegate. “You’re seeing incredibly strong demand,” CEO of BP Bernard Looney told Bloomberg TV on 27 April, as China’s oil demand is above pre-pandemic levels, the US is almost back there and “vaccines are going to kick in now in Europe.”
“The dark cloud is India,” believes Global Head of Commodities Strategy at RBC Capital Markets Helima Croft adding that even if Indian demand deteriorates further, OPEC+ has a mechanism to act pretty quickly. At the moment, the coalition meets roughly every month with the next gathering scheduled for 1 June.