Oil Gets Back Above The $40 LevelOil continued its rebound and gained additional upside momentum above the psychologically important $40 level.
Oil Video 17.09.20.
OPEC + Is Set To Discuss The Impact Of Coronavirus
Today, OPEC+ meets to discuss the current state of the market. According to a recent Reuters report, the negative impact of the recent surge in the number of new coronavirus cases in the world will be an important part of this discussion.
Israel will enter a three-week lockdown this Friday while many European countries have started to re-introduce certain virus containment measures.
The main longer-term problem for the oil market is the complete lack of visibility on the jet fuel demand front. Now that many countries are trying to contain the second wave of the virus, it is impossible to tell when air travel will return to normal.
OPEC+ sees this problem but there is nothing it can do about it. In my opinion, additional production cuts are off the table for the foreseable future as OPEC+ members need to restore their budgets that suffered a double blow from the virus and low oil prices.
In this light, OPEC+ will likely stick to a wait-and-see approach until the beginning of 2021. When the world is past the flu season in the Northern Hemisphere, the visibility for oil demand patterns should improve.
OPEC+ Laggards Are In Spotlight Again
During the current crisis, OPEC+ emphasized the importance of full compliance with production cuts. As usual, there were laggards, but compliance was much better compared to OPEC’s previous attempts to support the market with production cuts.
This time, OPEC+ will have to discuss the situation around an unusual laggard. According to IEA, United Arab Emirates (UAE) produced 3.11 million barrels per day (bpd) in August compared to its quota of 2.59 million bpd.
UAE explained that it had to increase production during the summer peak of electricity demand. OPEC+ will now try to force UAE back into compliance.
Also, OPEC+ is set to give other laggards like Iraq and Nigeria more time to make additional cuts in order to compensate for the previous overproduction.
The recent inventory report was bullish for the market, and promises of additional production cuts may provide more support to oil prices. However, it remains to be seen whether WTI oil will manage to stay above the $40 level after U.S. Gulf of Mexico producers bring their barrels back to the market after the passage of Hurricane Sally.
For a look at all of today’s economic events, check out our economic calendar.