Just as the oil market seemed to be in balance, OPEC members had an unpleasant surprise from exempted member Libya. The country’s warring factions reached a ceasefire, and some long-shuttered oil ports have been reopened, along with the fields that feed them. By the end of the month, Libya’s National Oil Corporation plans to boost the average daily output of Libya from less than 100,000 bpd to 260,000 bpd.
Meanwhile, OPEC+ has relaxed its production cuts by 2 million bpd. The oil market seems to have gone in a tizzy, once again. Demand was still weaker than previously expected, and any additional oil flowing into markets would fail to be absorbed, resulting in build-up of floating storage.
Reports emerged earlier this month that commodity traders were chartering more tankers to store crude oil offshore, sparking concern we could see something like a repeat of this spring when hundreds of millions of barrels of unsellable oil had to be dumped on tankers because onshore storage was full. After the lockdowns ended, demand began improving. This moderate demand boost, however, fell short of pretty much all expectations.
One particularly worrying trend is the slow rate of economic recovery among emerging countries—the main drivers of oil demand growth. Except for China, most are still battling the coronavirus and its effects on their economies. India is a good case in point: its oil demand is seen to be the worst affected by the coronavirus as the country itself suffers the second-highest total case count in the world.
Some analysts believe, however, that demand in China is about to start slowing down soon. It will be a long-term trend, according to the Oxford Institute for Energy Studies, and a result not just of Covid-19 but of Beijing’s emission-reduction goals. Over the next 20 years, the energy research organization said, China’s oil demand was likely to grow at an annual pace of 3 to 4 million bpd, after growing by double-digit rates in the past few years.
Meanwhile, OPEC is out of options. The cartel and its partners in OPEC+ will discuss the next steps later this year, with the original plan involving a further relaxation of the cuts, by 2 million bpd, from January 2021. The way prices are moving now and likely to move during the final quarter, this may become a topic of arguments within the group, as some members need oil revenues more urgently than others.