Why OPEC is not optimistic about first half of 2021

Deep investment cuts, couple with huge job losses and crude oil demand destruction are responsible for the not too positive outlook the Organisations of Petroleum Exporting Countries OPEC is having concerning the first half of 2021.

“Amid the hopeful signs, the outlook for the first half of 2021 is very mixed and there are still many downside risks to juggle. We are only beginning to emerge from a year of deep investment cuts, huge job losses, and the worst crude oil demand destruction on record,” OPEC said.

It said that curbs on social and economic activity remain in place in a number of countries, and there is concern about the emergence of a pernicious new strain of the virus. Last night I saw on the news there are now about 30 countries that have reported this new strain.

Muhammadu Barkindo, secretary general of the organisation made these observations when he addressed the staff of the secretariat.

He said though the on-going restrictions are necessary to combat the pandemic, they have chipped away at business sentiment and consumer confidence in some of the world’s biggest economies.

“It is too early to tell how quickly key sectors will bounce back to their prepandemic growth trajectories even if the vaccines defeat this terrible virus”, he said.

Sectorally, he stated, that travel, tourism, leisure and hospitality continue to be affected, but that the projections show that there will be a rebound in the second half of 2021 with upside potential. He however stated that it could be another a couple of years before these sectors bounce back to PRE-COVID levels, with corresponding lagging impact on oil demand.

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The OPEC boss stated that the Christmas Eve trade agreement between the UK and EU is a promising development for the recovery process after months of very difficult and rancorous negotiations.

“Stimulus packages have clearly helped prevent deeper economic contractions and continue to lend crucial recovery support. The EU and US have now approved measures which, taken together, provide nearly $2 trillion in additional support for those economies. It is worth noting that fiscal and monetary stimulus packages in the G20, including bank guarantees, have reached $25 trillion, corresponding to more than 20 percent of the global economy”.

According to him, inventory levels show positive momentum – though they remain stubbornly high as preliminary November data shows total OECD commercial oil stocks fell by around 24.8 million barrels m-o-m.

The current levels he said are more than 205 million barrels higher than the same time one year ago and about 163 million barrels above the latest five-year average. “Seesawing stock levels dented market momentum heading into the year-end holidays, and outside the OECD, inventories remain well above average levels”.

He said as we turn an eye to this year, we can only speculate on how the social and working habits developed out of necessity last year will ultimately affect important areas such as mobility over the longer term. Furthermore, the new strain of the virus he explained is a harsh reminder of how delicate the situation remains after a year of human loss, economic shock, and historic oil market destruction.