From quiet skies over Europe to sparse traffic in America’s biggest cities, a recovery in global oil demand is faltering amid the resurgence in coronavirus. That poses a particularly delicate challenge for the OPEC cartel and its partners, who next week plan to resume some of the crude output halted during the depths of the pandemic. While the alliance is eager to ramp up oil sales after successfully reviving prices, the relapse in the world economy means that extra supply is arriving at a fragile moment, and could send the market lower again.
“We’re in quite a finely balanced place in terms of the scope to increase production,” said Alex Booth, head of research at market intelligence firm Kpler SAS. “You have to have quite a bullish view on the demand recovery to be able to justify any significant increase.” The OPEC+ alliance — led by Saudi Arabia and Russia — took a record 9.7 million barrels of daily output, or roughly 10% of global supply, offline when demand plunged over the spring. They intend to restart about 1.5 million barrels next month.
In theory, it’s reasonable for the 23-nation coalition to open the taps a little. Their stringent cuts have almost tripled international crude prices from the lows struck in late April, lifting Brent crude futures to $43 a barrel. That’s thrown a lifeline to countries reliant on energy sales to finance government spending, and companies like Exxon Mobil Corp. and BP Plc.
Global oil markets have swung into deficit after months of surplus, with demand exceeding supply in July by about 2 million barrels a day, according to Rystad Energy A/S, a consultant based in Oslo. That’s paring some of the inventory glut amassed during the first half of the year.
The inventory decline for the quarter as a whole could be twice as steep, averaging 4.4 million barrels a day, even if OPEC+ revives production, according to the International Energy Agency in Paris.