Not quite there yet

OPEC Bulletin Commentary – April-May 2021

In recent days, the oil market has been experiencing a two-faceted reality. One reality sees a hopeful and even bullish outlook for economic recovery in the second half of 2021, which would help restore oil demand growth and accelerate the market rebalancing process.

On the other hand, the more unpleasant reality is the ongoing saga of the seemingly unrelenting global pandemic, which continues to rear its ugly head and ravage several regions of the world through a resurgence in infections. The complex nature of this dynamic is due to the fact that these two realities are inextricably linked to one-another, and the outcome of one will, by default, impact the other.

This latest wave of COVID-19 has been especially devastating to India, which is experiencing a record-breaking rise in infections and loss of life. As of this writing, the country was struggling to deal with record surges in daily infections, which reached more than 386,000 cases at the end of April, and a staggering daily death toll of over 3,500. Health systems are overwhelmed with the influx of patients and a lack of adequate medical supplies, equipment, infrastructure and personnel. World Health Organization Director General, Tedros Adhanom Ghebreyesus, has characterized the situation as “beyond heartbreaking”, and has pledge to dispatch extra staff and medical equipment to help ease the situation. Other world leaders have also pledged to offer aid in the form of supplies, medical personnel and vaccines.

Until this tragic humanitarian situation is brought under control, any sort of holistic global economic recovery will be muted. The fact is that India is the second-most populous country in the world and the third-largest oil importer. Until this latest bump in the road, India was expected to contribute roughly ten per cent of all demand growth this year, and thus any ripple in its progress clearly impacts the global recovery dynamic.

This challenging scenario is balanced, however, with a brightening picture in the OECD countries, due in no small part to the wide and effective rollout of vaccination programmes, a vast influx of government economic stimulus and a slow but steady return to normal life.

The United States, for example, has been at the forefront of global vaccination efforts. In US President Joseph Biden’s address to the US Congress on April 28, he announced that 52 per cent of US adults had received at least one COVID-19 shot, and that more than 200 million inoculations had been administered in his first 100 days in office. “Now, after just 100 days, I can report to the nation: America is on the move again,” the President declared. “Turning peril into possibility. Crisis into opportunity. Setback into strength.”

This and other success stories in the battle against COVID-19 will mean more cars on the roads, more planes in the sky and a boost in industrial activity, all of which will help drive a return to oil demand growth. Another bullish factor is the imminent summer driving season, which will no doubt increase the demand for gasoline through the summer months.

Meanwhile, OPEC and its non-OPEC partners of the ‘Declaration of Cooperation’ continue to be highly effective in their joint efforts to provide a stable foundation for recovery and growth. After helping lift the industry out of the ashes of destruction last year, they continue to champion a measured approach, as always, balancing the needs of producers, consumers and the global economy.

“We can take comfort in knowing that our leadership has helped turn the tide,” OPEC Secretary General, Mohammad Sanusi Barkindo, said during the 16th OPEC-non-OPEC Ministerial Meeting (ONOMM) conference call on April 27. “But at the same time, the persistence of COVID-19 reminds us that this no time to stray from the cautious and steadfast approach we have taken over the past year.”

This measured and vigilant approach to the market rebalancing process was echoed by HRH Prince Abdul Aziz Bin Salman Al Saud, Saudi Arabia’s Minister of Energy and Chairman of the ONOMM, during the 15th ONOMM.

“Steering the ship in these current conditions where different scenarios are playing out in various regions of the world requires a steady hand on the tiller as I said back in February. It also requires flexibility and being responsive to market needs,” he said. “Our agreement back in December 2020 provided us with a flexible mechanism to hold monthly meetings starting from January 2021 and to decide on whether to adjust output, be it increase, maintain, or decrease production depending on market conditions. Continuing with this flexible approach will serve us best.”

OPEC Bulletin (April-May 2021)

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