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News of a vaccine to fight coronavirus (Covid-19) gave confidence to the market, but the ongoing increase in cases worldwide continues to weigh on the global economy.

The oil price rallied this week and the Saudi Arabian minister hinted of further oil supply management at one of the world’s biggest energy gatherings held virtually this week.

In Friday trading, Brent crude was above US$43 with WTI over US$40 a barrel.

The oil price surged earlier this week on news of a vaccine from pharmaceutical company Pfizer (NYSE;PFE) but the International Energy Agency cautioned that oil demand will not automatically rise as a result of this news.

A return to normal

It will take time for life to return to normal and economic activity to rise. This is a prerequisite for any indication of a rise in global oil demand.

OPEC will meet at the end of the month and the energy minister for Saudi Arabia, Prince Abdulaziz bin Salman said the organisation was capable of “tweaking” supply to meet the needs of the world.

In its monthly oil report, the IEA said “it is far too early to know how and when vaccines will allow normal life to resume,” adding that their forecasts don’t see any recovery in the first half of 2021.

The IEA increased its gloomy outlook for the oil market this year, saying it expects global oil demand to fall by 8.8 million barrels a day in 2020.

Pre-Covid, oil demand had been above 100 million barrels a day, the IEA is expecting we’ll close out the year at around 91.3 million barrels a day.

OPEC issued its monthly oil report this week with estimates of global oil demand just above 90 million barrels a day, down 9.8 million barrels a day.

No swift uptake

As the pandemic spreads and cases increase, the organisation sees no swift uptake in oil demand.

“These downward revisions mainly take into account downward adjustments to the economic outlook in OECD economies due to COVID-19 containment measures, with the accompanying adverse impacts on transportation and industrial fuel demand through mid-2021″.

OPEC expects 2021 to be a better year for oil demand with expectations of an increase of 6.2 million barrels a day, still lower than pre-pandemic levels. The IEA expects that increase to be 5.8 million barrels a day in 2021.

Global oil supply is on the increase and with such low demand, that will be a concern.

The IEA estimates that it’s up 200,000 barrels a day since last month and with production from Libya back in the mix and a resumption of supply in the US post hurricane season, more than a million extra barrels could be expected on the market.

The IEA said that “the combination of weaker demand and rising oil supply provides a difficult backdrop to the meeting of OPEC+ countries”.

Saudi Arabia’s Prince Abdulaziz bin Salman was speaking at ADIPEC in Abu Dhabi this week and he reassured the market when he said that OPEC ministers are ready to make whatever adjustments are necessary to keep the market in balance.

Principle of tweaking

“They are committed to the principle of tweaking,” he said, adding, “it could be a tweak even beyond what the so-called analysts are talking about”. OPEC is scheduled to ease the current production cuts for 2021, but the feeling is they will maintain the current cuts of 7.7 million barrels a day.

The UAE minister of energy and infrastructure, Suhail Al Mazrouei also addressed the conference and added that “OPEC+ are up to the challenge of doing whatever it takes to create that balance,” adding “we have the ability to tweak”.

This year more than ever, oil producer tweaking skills will be needed as the industry is under severe pressure.

A return to stronger global growth will be slow but sure, as the world now looks to a vaccine to help stop the pandemic.