Although most of the world’s largest fossil-fuel nations agreed on a small hike of 500,000 bpd beginning in January 2021 thanks to good vaccine news and rising oil, however, the cartel could still meet a few bumps in the road, some of them of its own making, analysts have said.
Some analysts believe the economic effects of a global vaccination scheme, which will likely take 6-18 months due to logistics, financial restraints and political strategies, are going to be minimal in the short term.
“This is the wrong time to be increasing crude supply,” Bob McNally, president of consultant Rapidan Energy Group and a former White House official, said in a Bloomberg television interview. “The demand pullback in Europe is frightening.”
US banking giant JP Morgan, one of the most authoritative voices in the global oil market, believes global oil demand remains “too fragile” between now and when a vaccine will likely be widely available for the market to absorb the planned output increase from OPEC+.
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“While the vaccine progress relieves some of the pressure on the OPEC, it won’t provide a significant boost to demand until the second half of 2021 next year, according to the International Energy Agency in Paris. The economic fallout from the latest wave of lockdowns will linger,” OPEC admitted in its latest report.
Although by the end of the year, a return to $50 a barrel is possible after recovering from its worst history and hitting 21-year lows of below $20, however this victory for OPEC’s “petronations” has not come without compromise, and many within the cartel may be eager to shrug off the production restrictions that have helped prop up the price of oil.
There is also a growing resentment that the OPEC+ policy is driven primarily by ‘bullying’ from Saudi Arabia and Russia, with little consideration of other producing countries.
With the OPEC summit imminent, there are clear signs the UAE, Kuwait, and Iraq are all digging in their heels in a reluctance to roll over production cuts which have created winners and losers – with Saudi Arabia and Russia on top and the trio in the latter category.
It’s in that context that the UAE went as far as to signal last month it might consider a future outside OPEC. And while the deal reached on last Thursday allowed for a show of unity, it will come up again for review in January, meaning the drama could be replayed in 2021 as the cartel charts a path out of the pandemic.
More than any other oil-producing country, Nigeria needs a combination of higher oil prices and favourable OPEC cut to fund its N13.083 trillion 2021 budget and survive its economic recession which is the worst in recent history.
