The so-called OPEC countries have decided to cautiously increase production again from next month. A remarkable decision in view of the low oil price. Oil giant Russia also joins the plans of the cartel. Natural gas production, on the other hand, is declining.
A few months ago, the oil cartel and Russia still curbed oil production, because the corona crisis caused a significant drop in demand. Production was then reduced by 9,7 million barrels per day, from August a daily production limit of 7,7 million barrels still applies.
The price of a barrel of Brent oil has been fairly stable since mid-June, briefly above $40. A doubling compared to April, but still 60% lower than at the beginning of this year. Due to large stocks, there is certainly no balance in the oil market. In addition, the corona pandemic is not (by a long way) under control, and there is a real chance of a second wave of infection in many countries. The intended production increase is not necessarily logical from that point of view.
Question not recovered yet
On the other hand, oil demand has fallen less than expected this year, OPEC outlined in their monthly report released this week. This states that oil demand will decline by 2020 million barrels per day in 8,9, compared to 9 million barrels a month ago. From 2021, the demand for oil will continue to recover, although it will remain below the level before the corona crisis. The recovery motivates Opec to open the oil tap a little further. In view of the easing of production, a further price increase for the oil price is not in the pipeline.
Following Shell and BP, the Italian oil group Eni recently revised its forecast for the oil price downwards, because the corona crisis is temporarily leading to a reduced energy demand. The price will only recover somewhat in 2023, according to the Italians, and will remain below the $50 mark until the end of this year.
Natural gas consumption drops by 4%
The natural gas market is also struggling with a drop in demand due to the corona crisis. At the end of June, gas was trading at just $1,44 million British thermal units. In the first half of this month, the price rose again to $1,88, but then fell back. Natural gas has been trading below the $2 mark since early May. This is unique from a historical perspective.
The International Energy Agency (IEA) expects global natural gas consumption to fall by 4% this year due to the cooling economy. A recovery of the natural gas price is therefore not obvious, although production in many countries is now declining, which means that the price is not expected to fall much further. Production has remained reasonably stable in recent months.