Faltering Crude Demand Puts Pressure on OPEC+ Production Agreements

EghtesadOnline: It was meant to be the week when OPEC nations gathered in Baghdad to celebrate the organization’s six decades as a dominant force in global oil markets.

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15 September 2020

Instead, OPEC and its allies will convene online, and reflect on whether the coronavirus has thwarted their best efforts to keep the market afloat, Bloomberg reported.

After reviving crude prices from an unprecedented collapse over the spring, OPEC+ is seeing the recovery stall and fuel demand falter as the deadly pandemic surges once again. Prices slipped below $40 a barrel last week for the first time since June.

On Sept 17, Saudi Arabia and Russia will chair a monitoring meeting to assess whether the vast production cuts, which they started easing in August, are still staving off an oil glut. New signs of exporters reneging on the deal aren’t helping.

“There were some major assumptions built on where demand and the recovery would be now, and it just hasn’t happened,” said Mohammad Darwazah, an analyst at research firm Medley Global Advisors LLC. “If I’m OPEC and if I’m Saudi Arabia, I would be concerned.”

The relapse is a source of acute financial distress for OPEC nations, from poorer members like Nigeria and Venezuela -- who need crude prices far above current levels to cover government spending -- all the way up to wealthy Gulf monarchies like Kuwait.