The future of oil is looking increasingly more uncertain as numerous variables coincide to make investors increasingly more bearish. Oversupply, flattened demand, and non-compliance with OPEC+ production cuts are just some of the factors that are causing investors to become increasingly more trepidatious with the oil sector.
Mixed signals on the future of oil are being received from all directions. On the one hand, oil futures improved after news that a blockade on Libyan oil exports would be lifted for a month. On the other hand, oil markets are turning increasingly more bearish as the pandemic's economic impact continues to widen. This leaves the question; is there a clear idea of the future for the oil sector? The consensus seems to be bearish in the short term, with many forecasts for 2020 being cut sharply, but with demand improving in 2021 when the pandemic is expected to wane.
Many eyes have been on OPEC+ during the ongoing pandemic, with expectations that the organization would address the downward spiral in demand and stymie crumbling prices. OPEC+ responded with production cuts that stopped the price spiral and allowed prices to recover modestly. It would seem, however, that there is a rising issue of non-compliance among OPEC+ members. Prince Prince Abdulaziz bin Salman, the Minister of Energy of Saudi Arabia, scolded non-compliant states for their lack of effort in meeting expected production cuts. Iraq and Nigeria were among the states in question and were given until September to make up for their overproduction amid the agreed-upon cuts.
"Full compliance is not an act of charity," the Prince said. "repeated promises that are not carried through in a timely fashion may have a temporary positive impact, but if these are not delivered, they can come back to bite us all."
The problem of overproduction was underlined by the spike of Coronavirus cases in numerous countries, which threatens to curb demand as the threat of renewed lockdowns looms over the global community. Weakening demand could force OPEC+ to take additional measures, hinted at by the possibility of an abnormal October meeting of OPEC+ if markets continue to weaken. The possibility of a special OPEC+ meeting highlights the uncertainty over the future of the oil market, even as some investors try to return to bullish sentiment.
Oil prices have fluctuated over the course of the week but saw heavy fluctuations on Thursday and Friday. Both West Texas Intermediate
- https://oilprice.com/Energy/Energy-General/Saudis-Scold-OPEC-Laggards-For-Trying-To-Outsmart-The-Market.html
- https://www.zawya.com/mena/en/markets/story/Oil_flat_as_Libya_developments_counter_OPEC_boost-TR20200918nL4N2GF122X9/
- https://clicklancashire.com/2020/09/19/oil-overproduction-opec-asked-to-extend-compensation-period.html
- https://www.equities.com/news/saudi-energy-minister-prince-abdul-aziz-warns-traders-against-shorting-oil
- https://japantoday.com/category/business/update-4-opec-may-hold-extraordinary-october-meeting-if-oil-market-worsens-source
- https://www.worldoil.com/news/2020/9/9/oil-markets-turning-bearish-amid-signs-of-pandemic-s-accelerating-economic-impact