Oil refuses to rise

Having earlier flirted with high $40s/bbl, crude oil has come back to where experts now believe it belongs for a very long time. Early $40s at the best of times, making frequent visits to the $30s. The latest in the oil story is Opec’s bold admission that it had overstated the demand earlier this year, even during the pandemic. The latest report shows Opec has lowered the global demand forecast for the fourth wave running – which is a first in recallable memory.

The oil cartel had earlier warned of consequences a potential second wave of the pandemic could bring to oil prices, back in August, when bullish sentiments were making inroads. And it appears the second wave is very much here, particularly in Europe, whereas the likes of North and South America are still struggling with the first one.

The demand compression views have also ben echoed by the United States Energy Information Administration (IEA). The US EIA foresees demand to compress further in 2021, down by a further 3 percent from the earlier projection. The depressing demand scenario is single handedly enough to keep oil prices bearish, in a market that is far from balanced.

“While the 3Q20 recovery in some economies was impressive, the near-term trend remains fragile, amid a variety of ongoing uncertainties, especially the near-term trajectory of Covid-19. As this uncertainty looms large, amid a globally strong rise in infections, it is not expected that the considerable recovery in 3Q20 will continue into 4Q20 and in 2021,” reads an excerpt from the monthly Opec outlook report.

And if demand side pressures were not enough, throw in Opec’s continued stress on how it will not alter its earlier plans to relax supply restriction in a phased manner. Recall that Opec and Russia have stuck to an unprecedented production cut deal for a long time now, with very high compliance rate of 97 percent. But the partners had agreed to gradually relax the production cut in a bid to regain some of the lost market share to the US, which seems to have gained good grounds in the meanwhile.

All said, things could change quickly in the oil market, where sentiments and speculations still hold high driving force. But, in a market that is fundamentally weak on both supply and demand fronts, nothing short of a turnaround will bring the prices back to $50/bbl. Even $50/bbl by the end of 2020 could actually be considered premium, given how the world is still grappling with the coronavirus. Pakistan, meanwhile, cannot thank its stars enough.