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COMMODITIES

OPEC predicts a deeper drop in global oil demand, based on serious coronavirus challenges

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The Organization of Petroleum Exporting Countries (OPEC) forecasts that global oil demand will fall deeper in 2020 than was previously predicted, due to the coronavirus pandemic, and recovery being slower than expected next year.

This is coming after signs of a recovery in supply from US shale drillers, and a few days before the scheduled meeting of OPEC ministers.

This new outlook raises questions about the group’s decision to ease production cuts last month, which the cartel had been implementing as part of measures to boost the coronavirus-hit oil market.

OPEC added 760,000 barrels a day to the global oil market in August, just as its analysts were making a downward revision of demand for its crude by more than 1 million bpd.

OPEC and its allies are expected to hold an online monitoring meeting on Thursday, to assess whether the huge output cuts being implemented are still sufficient to stave off an oil glut, as the resurgence of coronavirus is hitting the global economy hard.

OPEC had also cut its demand forecast for 2021, and sees consumption rising by 6.62 million bpd, which is 370,000 bpd less than expected last month.

Oil prices slumped further below $40 per barrel on Monday, close to their lowest in over 2 months, as some oil firms like British Petroleum Plc, and Trafigura Group made worrying predictions about consumption.

OPEC and its allies, which include Saudi Arabia and non-members like Russia, had agreed to ease some of the output cuts, made at the height of the negative impact of the coronavirus pandemic on the oil market. This month’s report from OPEC’s secretariat in Vienna suggests that the move might have been premature.

OPEC had cut back on its global oil demand forecast, for each quarter to the end of next year, by an average of 768,000 bpd. This will lead to a collapse by an unprecedented 9.46 million bpd in 2020, averaging 90.23 million bpd.

The group simultaneously raised projections for production outside OPEC over the next 5 quarters, by an average of 394,000 bpd, mostly due to a stronger outlook for the U.S.

The combination of softer consumption forecasts and more robust non-OPEC supply numbers, depresses the requirement for crude from the cartel. The organization reviewed downwards, the estimated demand for its crude next year by 1.1 million bpd to 28.2 million bpd.

While OPEC is producing far below this level because of its agreement to curb supply, the revision indicates that the world’s bloated oil inventories will subside more slowly than previously envisaged.

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COMMODITIES

Gold posts worst monthly decline since 2016, as U.S dollar keeps rising

The precious metal posted its worst monthly decline since 2016 as gold prices broke below the $1,750 support.

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Gold has of late been under immense pressure, as the Dollar Index surged to a one-week high of 90.8. The safe-haven currency is an outright alternative to gold and typically pressures gold when it gains.

The precious metal posted its worst monthly decline since 2016 as gold prices broke below the $1,750 support at the last trading session of the week, following most commodities and global stocks lower for a second straight day as global investors readjusted their portfolios.

With Friday being the last trading session for the month of February, it wrapped up the month with a 6.6% decline, its worst since a 7.2% decline in November 2016.

Gold for April delivery lost about 2.6% to settle at $1,728.80 per ounce. It earlier plunged to $1,715.05, its lowest point since a June 8 bottom of $1,700.10.

For the week, the precious metal contract lost about 2.7% in value, following through with the previous week’s drop of 2.5%.

Stephen Innes, Chief Global Market Strategist at Axi, in a note to our source, spoke on other prevailing macros weighing heavily on gold prices

“The rise in real yields has seen gold under pressure with everyone selling. Although positioning is cleaner, the overall market is still long, and ETF selling negatively affects the market on actual position clean out rather than just speculative sell-off. Which is more worryingly an early sign of a capitulation.”

Bottom Line

Gold traders are not keen on going bullish, at least for the near term, on the bias that rising U.S Treasury yields see investors showing less interest in the yellow metal.

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COMMODITIES

Gold maintains shine after advancing for two days

The bullion asset regained its lustre after a 2.2% drop recorded in the past week,

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Gold stayed on course at the second trading session of the week after advancing for two days, as metal traders awaited testimony from U.S Fed Chief, Jerome Powell.

At the time of drafting this report, the bullion asset traded at $1,807.24 an ounce after rising 1.9% over two days.

The U.S Fed Chief’s semi-annual report at the U.S congress today and the next day will be monitored by metal traders for further policy guidance, and his assessment of the economic recovery at the world’s largest economy.

The bullion asset regained its lustre after a 2.2% drop recorded in the past week, as traders refocus on rising inflation expectations.

In an explanatory note to Our source, Stephen Innes, Chief Global Market Strategist at Axi, gave valuable insights on how the precious metal managed to stay above the $ 1,800-ounce price level.

“It was a strange world seeing the commodity locomotive racing at full steam, but gold left-back at the station. But correlations are looking more normal today after yesterday morning signal gold was trading slightly higher in delayed response to USD weakness. A weaker US dollar remains one of the primary lift-off balloons.

Gold built on Friday’s modest rally, clearing and holding above the USD1,800/oz level. USD weakness was likely the key factor behind gold’s recovery.”

What to expect: The U.S congress may vote on the US$1.9 trillion stimulus package in the coming days, which should hold gold’s appeal as inflation concerns and reflation appeal suggest gold is a good hedge.

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COMMODITIES

World’s largest oil producer loses four million barrels per day

Oil traders are going bullish on the black liquid hydrocarbon, over the unprecedented cold snap in a leading American energy hub, Texas

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Oil prices were all fired up at the first trading session of the week.

The unusual winter storm playing in key areas of the world’s largest producer of oil saw an estimated four million barrels per day of oil output shut down in Texas and other states, alongside 21 billion cubic feet of natural gas output.

Oil traders are going bullish on the black liquid hydrocarbon, over the unprecedented cold snap in leading American energy hub, Texas. Also giving crude oil bulls enough gas to stay at least above the $60 price level is the recent progress against the COVID-19 pandemic, in turn, raising hopes for energy demand recovery.

What you should know

  • Most recent data retrieved from the Energy Information Administration reveal the United States is currently the world’s largest producer of oil, producing about 19.45 million barrels per day or 19% of the world’s total crude oil production in 2019.
  • At press time, Brent crude futures rallied by 1.13% to $62.84 a barrel with the Brent crude contract turning over in February 21 to the May 21 contract.

Stephen Innes, Chief Global Market Strategist at Axi, in a note to Nairametrics, gave key insights on other macros weighing on oil prices at least for the near term amid high positivity prevailing in global financial markets

“What began as a power issue for a handful of US states quickly turned into a global supply shock for the oil markets. Still, the re-start of shut-in US production and news that the Biden administration is exploring diplomatic re-engagement with Iran have contributed to a cooling of oil prices, despite the bullish inventory data.

“But “the day after”, see oil prices nudging higher amid ongoing evidence of recovery in global demand, mostly good news on the Covid-19 trends and anticipation of a nearly 2 trillion US stimulus designed to get people working again quickly.”

What to expect

  • The sharp surge in crude oil prices before OPEC+’s all-important meeting next month means the calculus for the OPEC+ alliance becomes more complicated.
  • However, as oil output stays constrained, crude oil stockpiles are dropping and with COVID-19 vaccines promising a return towards normalcy at the end of the day, expectations continue to run high for oil markets.
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