Oil Market Outlook and OPEC+ dynamics amid COVID-19
Written by Christy- Belle Geha, Intern at the Issam Fares Institute’s communications office.
The Issam Fares Institute for Public Policy and International Affairs (IFI) at the American University of Beirut (AUB) organized a webinar titled “Oil Market Outlook and OPEC+ dynamics amid COVID-19" on December 3, 2020.
The panel hosted Herman Wang, managing editor of OPEC/Middle East news, Carole Nakhle, CEO of Crystol Energy, and Yousef Alshammari, CEO and head of Oil Research.
Marc Ayoub, researcher at IFI's Energy Policy and Security Program, moderated the discussion.
Herman Wang gave an overview on OPEC's history and the emerging importance of OPEC+ alliance. Wang specified that OPEC usually meets twice a year, and that this year there has been a 10 percent cut in the number of oil barrels produced, compared to the production levels in the pre-pandemic era. “OPEC is being cautious and does not want to release too many barrels," he noted.
On compensation cuts, Wang explained that not all countries are implementing compensation cuts, thus overall compliance is strong whereas individual compliance is patchy. Countries that violated their quotas are obligated to make up for it, says Wang, and countries heavily sanctioned by the United States, such as Iran and Venezuela, are exempted from cuts. The United Arab Emirates (UAE) seems to be the biggest obstacle to reaching a deal, with its intentions to increase the production target to $5 million barrels per day by 2030 as part of its expansion plans. Yet, Wang pinpointed the co-leadership of OPEC by Russia and Saudi Arabia (KSA) and the will of the KSA to keep oil production capped.
Carole Nakhle dissected the impact of COVID 19 on the oil market and questioned whether the pandemic will remain as a transitory shock or a new path. She insisted on the fact that market forecasts can be inaccurate because of current dynamics worldwide, and that the pandemic has been driving the economy and oil demand down. Consequently, the one-directional linear relationship is weakening. Nakhle added that a V-shaped recovery was expected; but that does not seem to be near the horizon. “There is an all-around consensus that despite the development of vaccines, the economy does not appear to be bouncing back to pre-COVID levels," she commented.
Some recovery from the massive drop in oil demand witnessed in Spring 2020 is being seen according to Nakhle, but recovery and demand are still not at the pre-COVID levels. The world recorded a massive dip in commercial flights; OPEC+ is trying to stop prices from collapsing further.
Yousef Alshammari highlighted the importance of consumer behavior in oil demand and suspected a good form of recovery in the future, which was not expected at the beginning of 2020. Alshammari also explained that oil prices in 2021 will largely be influenced by many issues including COVID-19 vaccines and the public acceptance of these vaccines, the US-China trade deal, OPEC+ decisions, and the Biden presidency with a clean energy agenda. He then linked the decline in oil prices to governments' tendency to announce economic reform plans.
“Reports about the death of OPEC might be exaggerated to some degree," he added. “OPEC is constantly looking to recruit more into its alliance. It is now working with a larger group to bring back stability into the market."
He then moved to speak about the growing robust economic growth in China and India, a growth that has greatly supported the market. However, even with the promise and presence of vaccines, the global market cannot be described as healthy or robust, says Alshammari. “It is still unknown whether diversifying is deemed as a smart and strategic move for big oil companies," he expressed.
He noted that oil companies are still expected to play a major role in the coming years, and that it is still impossible to accurately predict what oil prices will look like in a decade, given that long term oil price predictions often overlook or fail to recognize current dynamics and conditions.
Check out Carole Nakhle's presentation, here.
Check out Yousef M. Alshammari's presentation, here.
Check out Herman Wang's presentation, here.
Watch the full session, here.