As COVID-19 has entered a second phase, a fresh wave of infections is escalating at a higher rate. The United States and Europe are already recording high values. There is a lot of anxiety as oil demands all over the globe are likely to plunge. As this takes place, OPEC+ urges member states to trim oil output.
Since the onset of coronavirus, oil-producing countries have cut off their daily production costs because of the limited demand. However, the situation is likely to worsen with the new wave of infections. Therefore, the oil giants are hoping to tweak an agreement on production cuts until the covid situation stabilizes and activities resume normally. In a tweet, the Saudi Arabia Energy Minister stated that OPEC and its partners were ready to navigate the recent treaty and tweak if need be. This move is to ensure they maintain the stability of the oil market comes into the future.
How Corona affected Oil Output.
Covid has contributed to deteriorating economies across the globe. Most countries have experienced a great plunge in their economic growth. For instance, the oil-producing countries incurred great losses as the production rate exceeded the consumption rate. As a result, the value of oil reduced tremendously as the prices were extraordinarily low. Countries like the United States, Libya were getting losses.
The oil prices had collapsed as covid crippled travel and economic activities across the globe. Countries had grounded major airlines and banned movements from other countries. As such, oil-exporting countries had limited their purchases. Meanwhile, oil producers like Russia were counting losses.
It was at the same time that war broke between OPEC and non-OPEC countries. The price war involved Russia and Saudi Arabia. Amid the pandemic, Russia had increased its output and decide to pursue its own production strategy since it was no longer a member of OPEC. Saudi Arabia then decided to follow suit and increased its oil production rate. Oil had flooded the market while the consumption rate was low. Hence the oil prices declined to leave the companies that could survive a prolonged period of low prices to secure the market and win the war.
However, the situation improved as countries slowly returned to normalcy when the first wave of the pandemic reduced. It was around May 2020 when OPEC and its allies agreed to cut their production by 9.7 million pbd. America and other oil producers agreed to pump less.
Restored Hope
According to graphical analysis, investors doubt the possibility of oil prices recovering. They claim that markets do not see a return to previous levels. The demand for fossil fuels may decline in the future because of competition from renewable electricity. However, Sultan Al-Jaber, who is the Chief Executive Officer of Abu Dhabi National Oil Company, is optimistic that come to the end of the corona, everything will be normal. In a statement he said:
“We know that the world will still need oil and gas when all of this is over with and done. Even at the height of the lockdowns of March and April, the world still consumed 75 million barrels of oil per day.”
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