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OPEC Once Again Lowers Oil Demand for 2021

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OPEC Once Again Lowers Oil Demand for 2021

The Organisation of Petroleum Exporting Countries (OPEC), projected yesterday that world oil demand in 2021 will rebound more slowly than previously thought but added that it will pick up in the second quarter of this year.

The international oil cartel also forecasted that the prevailing rise in oil prices could brighten early economic recovery for the country, resulting in a medium-term Gross Domestic Product (GDP) expansion.

In its monthly report for February, OPEC projected that demand will rise by 5.79 million barrels per day (bpd) this year to 96.05 million bpd, trimming its growth forecast by 110,000 bpd from a month ago.

The prospect of weaker demand has already prompted OPEC and its allies, known as OPEC+, to slow their plan to boost output.

But more demand, rising prices, and lower rival supply could support the case for more easing, even as Iraq said on Wednesday OPEC+ was likely to keep current cuts in March.

“While the global economy is showing signs of a healthy recovery in 2021, oil demand is currently lagging but is forecast to pick up in the second half of 2021,” OPEC said in the report.

OPEC has steadily lowered its 2021 oil demand growth forecast from 7 million bpd expected in July. Still, the latest forecast is stronger than the prediction made in an earlier internal OPEC report.

The group raised its forecast of world economic growth this year to 4.8 per cent from 4.4 per cent previously, despite the impact of “challenges” such as COVID-19 variants and the effectiveness of vaccines.

“The global vaccination rollout is gaining pace, infection rates are falling in some areas, improvements in treatment, and the growing use of rapid testing facilities all lend support to an acceleration of economic activity after the first quarter,” OPEC said.

On its forecast for Nigeria, it stated: “The meaningful rise in of oil prices following the recent Declaration of Cooperation (DoC) decisions, along with a positive trajectory from COVID-19 vaccines, could brighten the 2021 outlook and lay the groundwork for a hopeful medium-term real GDP expansion.

“Moreover recent data showed that consumer confidence in Nigeria increased to 14.80 points in 4Q20 from -21 20 points in 3Q20.

“ However, recent Central Bank of Nigeria composite Purchasing Managers Index (PMI) for the manufacturing sector edged down to 49.6 in December 2020 from 50.2 in November, signaling a renewed contraction in the country’s manufacturing activity.”

For shale, OPEC trimmed its non-OPEC supply growth forecast to 670,000 bpd this year from 850,000 bpd previously, and said output of U.S tight crude, another term for shale, would decline despite higher oil prices.

“Supply from the U.S. is challenged by short-term uncertainties around COVID-19 (and) continued capital expenditure discipline leading to lower upstream capital spending by U.S. oil companies,” OPEC said.

Last month, OPEC raised its forecast for U.S. shale output this year, in a sign higher oil prices were helping a key competitor.

OPEC+ producers cut supply by a record 9.7 million bpd last year to support the market and agreed to pump an extra 500,000 bpd in January under a plan to unwind the curbs gradually. Most producers are returning to supply restraint this month and in March.

OPEC crude production in January rose by 180,000 bpd to 25.50 million bpd, the report said, led by Saudi Arabia, Iran, and Venezuela. This is less than the 300,000 increase allowed under the OPEC+ plan for January.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Brent Crude Oil Extends Gain to $86.66 a Barrel Amid Tight Supply

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Tight global oil supply pushed Brent crude oil, against which Nigeria oil is priced, to a multi-year high of $86.66 per barrel on Monday at 3:30 pm Nigerian time.

Oil price was lifted by rising fuel demand in the United States and tight global supply as economies recover from pandemic-induced slumps.

The global energy supply crunch continues to show its teeth, as oil prices extend their upward march this week, a result of traders pricing in the ongoing rise in fuel demand – which amid limited supply response is depleting global stockpiles,” said Louise Dickson, senior oil markets analyst at Rystad Energy.

Goldman Sachs on the other hand is predicting a further increase in Brent crude oil to $90 a barrel, citing a strong rebound in global oil demand due to switching from gas to oil. This the bank estimated may contribute about 1 million barrels per day to global oil demand.

The investment bank said it expects oil demand to reach around 100 million barrels per day as consumption in Asia increases after the devastating effect of COVID-19.

While not our base-case, such persistence would pose upside risk to our $90/bbl year-end Brent price forecast,” Goldman said in a research note dated Oct. 24.

Earlier this month, the Organization of the Petroleum Exporting Countries, Russia and their allies, known as OPEC+ agreed to continue increasing oil supply by 400,000 bpd a month until April 2022 despite calls for an increase in global oil supplies.

The decision bolstered the price of Brent crude oil above $84 per barrel and expected to push the price even further to $90 a barrel. Low global oil supply amid rising demand for crude oil will continue to support oil prices in the near term.

Despite the recent power cuts and impacts to industrial activity in China, oil demand is likely instead supported by switching to diesel powered generators and diesel engines in LNG trucks, as well as by a ramp up in coal production,” Goldman Sachs stated.

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Oil Falls Slightly as China Steps in to Curb Rising Coal Prices

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Global oil prices moderated slightly on Wednesday following the Chinese government’s decision to curb high coal prices and ensure coal mines function at maximum capacity.

Brent crude, against which Nigerian oil is priced, dropped to $83.98 per barrel at 11:00 am Nigerian time. While the U.S. West Texas Intermediate (WTI) crude fell by 80 cents or 1 percent to $81.20 a barrel.

“China is planning to take steps to combat the steep rises in the domestic coal market … which could put considerable pressure on the coal price there and reverse the fuel switch to oil,” Commerzbank said.

Prices for Chinese coal and other commodities slumped in early trade, which in turn pulled oil down from an uptick earlier in the day.

China’s National Development and Reform Commission said on Tuesday it would bring coal prices back to a reasonable range and crack down on any irregularities that disturb market order or malicious speculation on thermal coal futures. read more

Oil markets in general remain supported on the back of a global coal and gas crunch, which has driven a switch to diesel and fuel oil for power generation.

But the market on Wednesday was also pressured by data from the American Petroleum Institute industry group which showed U.S. crude stocks rose by 3.3 million barrels for the week ended Oct. 15, according to market sources.

That was well above nine analysts’ forecasts for a rise of 1.9 million barrels in crude stocks, in a Reuters poll.

However, U.S. gasoline and distillate inventories, which include diesel, heating oil and jet fuel, fell much more than analysts had expected, pointing to strong demand.

Data from the U.S. Energy Information Administration is due later on Wednesday.

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Oil Prices Hit Multi-year Highs on Monday

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Crude oil - Investors King

Oil prices hit multi-year highs on Monday buoyed by recovering demand and high natural gas and coal prices encouraging users to switch to fuel oil and diesel for power generation.

Brent crude oil futures were up 59 cents, or 0.7%, to $85.45 a barrel by 0900 GMT, after hitting $86.04, their highest level since October 2018.

U.S. West Texas Intermediate (WTI) crude futures climbed 90 cents, or 1.1%, to $83.18 a barrel, after hitting a $83.73, their highest since October 2014.

Both contracts rose by at least 3% last week.

“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts at ANZ bank said in a note, adding that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

Cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit, said Edward Moya, senior analyst at OANDA.

“The oil market deficit seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder,” he said.

“As coal, electricity, and natural gas shortages lead to additional demand for crude, it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the U.S.,” he said.

Prime Minister Fumio Kishida said on Monday that Japan would urge oil producers to increase output and take steps to cushion the impact of surging energy costs on industry.

Chinese data showed third-quarter economic growth fell to its lowest level in a year hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

China’s daily crude processing rate in September also fell its lowest level since May 2020 as a feedstock shortage and environmental inspections crippled operations at refineries, while independent refiners faced tightening crude import quotas.

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