Oil Moves Lower After OPEC Cuts Demand Forecasts For 2021

Oil Video 14.12.20.

OPEC Cuts Demand Estimates For The First Three Quarters Of 2021

OPEC has just published its Monthly Oil Market Report which contained the group’s new demand forecasts for the next year.

OPEC believes that demand for oil will total 95.89 million barrels per day (bpd) in 2021 compared to its previous forecast of 96.26 million bpd.

The first-quarter demand estimate was cut by as much as 1 million bpd from 94.96 million bpd to 93.97 million bpd. Continued problems with coronavirus in Europe served as the main catalyst for this revision.

In addition, OPEC believes that milder-than-normal winter weather in the northern hemisphere will put additional pressure on demand for oil.

At this point, it looks like near-term risks for oil demand are shifted to the downside.

Europe is set to enter into another round of lockdowns for Christmas. Italy is expected to announce new restrictions for holidays while Netherlands are projected to enter a tough lockdown which will last a month.The current problems in Germany and UK will likely force them to implement additional virus-containment measures which will put more pressure on oil demand.

In this light, OPEC’s demand estimate for the first quarter may end up being optimistic. At the same time, it remains to be seen whether traders will concentrate on current problems or focus on the longer-term view and bet on successful mass vaccination.

The Number Of U.S. Oil Rigs Continues To Increase

The recent oil price upside has clearly provided support to U.S. oil producers which are starting to employ more rigs. According to the recent Baker Hughes Rig Count report, the number of U.S. rigs drilling for oil increased by 12 to 258.

The most recent EIA Weekly Petroleum Status Report showed that U.S. domestic oil production remained unchanged at 11.1 million bpd. However, production should ultimately increase together with the number of drilling rigs.

As demand may be soft in the upcoming weeks due to seasonality and the negative impact of the virus, inventories may continue to increase. The oil market was able to shrug off the previous report which showed that inventories increased by 15.2 million barrels, but additional disappointments on the inventory front may put real pressure on oil prices.

For a look at all of today’s economic events, check out our economic calendar.