OPEC+ producers fear a prolonged second wave of the coronavirus pandemic and the return of Libyan production could result in a supply glut in 2021, Reuters reported based on the alliance’s confidential document. According to the report, OPEC+ Joint Technical Committee considered this worst-case scenario during an online monthly meeting on October 15. As early as last month, the committee had not expected a glut under any scenarios it considered.
Such a supply surplus poses a threat to OPEC+ plans to relax their production cuts in January. So far, OPEC has not indicated any changes on the plan to add 2 million bpd of oil to the market next year. The document said that resurging COVID-19 cases raised prospects of reimposed partial lockdowns across the world during the upcoming winter months that could weigh on economic and oil demand recovery.
The document includes a base scenario expecting a deficit of 1.9 million bpd next year, lower than a 2.7 million bpd projected in September’s base case. It also covers the worst-case scenario which projects a surplus of 200,000 bpd in 2021. The worst-case scenario assumes Libyan production would increase to 1.1 million bpd next year, compared to 600,000 bpd under the base scenario.
The worst-scenario also projects a prolonged second wave of COVID-19 infections which dampen the recovery in the US, Europe, and India during this year’s fourth quarter and next year’s first quarter. It also expects OECD commercial oil inventories in 2021 to be well above the five-year average. Under the base scenario, the inventories are expected to be slightly higher than the five-year average.
