[By Sopuruchi Onwuka]
Combined fiscal measures activated by world governments in response to the deleterious economic impact of the raging global coronavirus pandemic have crossed $20 trillion or some 20 percent of the world’s gross domestic product.
The gloomy global economic performance has consequently wiped off significant 11 million barrels per day from projected oil demand in 2020 when low prices also eroded huge revenues from market returns.
In consideration of the downturn in the global economy and poor outlook for oil demand, the ongoing efforts by coalition of world’s oil producing countries to rebalance the market through stringent output quotas might spill into next year as producers cut demand projection and point at need for lower output volumes.
Thus, the grim demand and supply projections would likely extend the prevailing fiscal imbalances in Nigeria and other oil dependent economies.
According to the Organization of Petroleum Exporting Countries (OPEC) which posted grim outlook for the oil market as the world responds to resurgence of the pandemic, governments have continued to expand fiscal stimulus measures, with many countries in Europe seeing further monetary expansion to help their populations as they entered further lockdowns.
Secretary General of OPEC, Mohammed Barkindo, who delivered remarks at the 24th meeting of the Joint Ministerial Monitoring Committee (JMMC) set up by the coalition OPEC and non member producing nations to track demand and supply dynamics, stated that the massive fiscal stimulus rolled out to buoy the global economy is supported by breakthroughs in vaccine development to provide hopes of gradual demand stimulus in the oil market.
“Evidently, the large fiscal stimulus packages remain supportive, and vaccines offer hope, but the benefits of the latter will take time to trickle through to the real economy, and oil demand growth,” he pointed out.
He pointed out that the despite the hopes posted by vaccines and stimulus packages, global economic growth has taken a hit from the pandemic, pulling down energy demand, deflating crude oil prices and hurting the economies of producing nations.
According to Barkindo, the global economic growth forecast would drop by a staggering 7.4% from the positive 3.1% envisaged at the start of the year to a negative -4.3% in 2020.
For 2021, he said, OPEC has slightly revised down growth from the 4.5% envisaged in September to 4.4%.
Therefore, he said, OPEC has revised its 2020 outlook for oil demand lower this November to a negative -9.8 million barrels a day (mb/d), “a drop of 0.3 mb/d from our October meeting.”
“This stands against growth of 1.2 mb/d that was expected in January 2020, a drop of a staggering 11 mb/d,” he explained.
“Additionally, this month we have revised down expected growth for 2021 to 6.2 mb/d, compared to 6.5 mb/d previously.”
Barkindo explained that the recent revisions are due to the slow pace of the economic recovery and recent COVID-19 containment measures, which are assumed to impact transportation and industrial fuel demand well into 2021.
“On the supply side, non-OPEC liquids production is forecast to contract by 2.4 mb/d in 2020, compared to expected growth of 2.4 mb/d that was forecast at the start of the year. For 2021, non-OPEC liquids production is anticipated to expand by 0.93 mb/d,” he said.
With surging production from the United States which is not involved in the market rebalancing coalition, slow decline in global inventory levels and contango in the futures deals of all major benchmarks; Barkindo reminded the committee that total global inventories have surged by more than 1.0 billion barrels since the beginning of this year, “and this would have been much higher without the DoC production adjustments and the high levels of conformity.”
He made it clear that despite the faith of the coalition members in the group’s supply rebalancing mechanisms, output restrictions would spill into 2021 in response to the advent of second and third waves of the coronavirus pandemic.
“We need to fully understand what is required, and be ready to adapt to any changing market dynamics to ensure we stay on the path that helps restore balance, and a sustainable stability to support growth and investments in the months and years ahead, Barkindo charged the coalition of producers.