US, WASHINGTON (ORDO NEWS) — On Wednesday, July 15, the OPEC + Ministerial Monitoring Committee will hold a virtual meeting to assess current oil production and make recommendations regarding future production volumes.
Currently, the OPEC + plan boils down to slightly relaxing restrictions and increasing total production by 2 million barrels per day, starting in August. The OPEC + countries agreed on this gradual increase in production back in April, and it was initially assumed that the implementation of this plan would begin in July. However, in early June, due to low demand, OPEC members and Russia agreed to postpone the increase in production until August.
Meanwhile, not all OPEC + manufacturers will begin to increase production volumes from August. Iraq, Nigeria and Angola agreed to keep their production levels lower for a few more months because they did not sufficiently reduce production in May and June. Saudi Arabia has made considerable efforts to force these countries to uphold their promises to reduce production and to receive formal assurances – especially from Iraq – of their readiness to fulfill obligations under the OPEC + agreement.
However, the real problem is not an offer. The real problem is demand, and OPEC +, quite possibly, is too optimistic about the world’s ability to consume more oil.
Saudi Aramco CEO Amin Nasser has publicly expressed his optimism about the gradual recovery in oil demand. On July 1, he announced that the demand for gasoline and diesel in China had returned to the level that was observed before the onset of the coronavirus pandemic. He also predicts that demand in other countries will also gradually grow, because “more and more countries will begin to lift restrictions.” Aramco executives are particularly concerned about China’s demand because China is China’s largest customer.
Meanwhile, demand in other countries does not demonstrate a stable and sustainable recovery. Although quarantine restrictions have been relaxed in many parts of the United States, gas demand remains much lower than in previous years, and weekly deliveries do not show a steady upward trend. Demand for diesel and aviation fuel also remains at a very low level. Thus, basing forecasts on global demand recovery on China’s recovery rates is probably not the best strategy, because economically the United States and other major oil consumers are not following in China’s footsteps. China may be ready to consume more oil, but the United States is not ready yet.
Oil prices have remained relatively stable throughout the past month. It is very possible that if global demand behaves differently than what Saudi Arabia expects, the appearance of an additional 2 million barrels per day on the market at the moment will only exacerbate the problem of market oversaturation and lead to another drop in oil prices.
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