The pandemic and the pace of economic and oil demand recovery from the coronavirus-inflicted crisis are posing a major challenge to oil producers in rebalancing the market, according to Tim Gould, Head of Division for Energy Supply Outlooks and Investment at the International Energy Agency (IEA).
Oil-producing countries and oil companies now have to factor in many more variables in their plans, including economic forecasts and various speeds at which vaccines are being used in different countries, Gould told Reuters on Wednesday.
“Producers are grappling with huge uncertainty about where this goes from here,” Gould said.
So high is the uncertainty that the OPEC+ group decided in December—just when Europe was renewing lockdowns to fight soaring coronavirus cases—to hold monthly ministerial meetings to discuss the state of the oil market and the prospects of near-term oil demand when deciding production policies month from month.
While the December decision of the OPEC+ alliance was to boost production in January by 500,000 barrels per day (bpd), thus easing the cuts from 7.7 million bpd to 7.2 million bpd, the January meeting refrained from lifting output in February too much, except for a compromise boost to Russia’s production by 65,000 bpd. OPEC’s de facto leader, Saudi Arabia, went the extra mile and pledged unilaterally to cut its crude oil production by 1 million bpd beyond its OPEC+ quota for February and March. Analysts view the surprise cut from the world’s top oil exporter as a sign that the Kingdom expects weak oil demand in the first quarter of this year.
Producers, however, need to juggle additional factors atop demand and economic activity, the IEA’s Gould says.
“That’s not just in terms of economic recovery but indicators we wouldn’t necessarily normally be looking at: (such as the) levels of trust in different countries about vaccines,” Gould told Reuters.
Vaccinations are off to a slow start in many countries, and analysts don’t expect a critical mass of economically active people to be vaccinated by the middle of this year.