The coronavirus crisis may have triggered the long-anticipated tipping point in oil demand and it is focusing minds in the Organisation of Petroleum Exporting Countries (OPEC).
The pandemic drove down daily crude consumption by as much as a third earlier this year, at a time when the rise of electric vehicles and a shift to renewable energy sources were already prompting downward revisions in forecasts for long-term oil demand.
Now it faces a dramatic adjustment if consumption starts a permanent decline. The group will need to manage even more closely its cooperation with other producers, such as Russia, to maximise falling revenues and will have to work to ensure relations inside the group are not frayed by any fratricidal dash to defend market share in a shrinking businesses.
But global lockdowns this year that grounded planes and took traffic off the streets, prompted OPEC to slash the 2020 figure to 91 million bpd, with 2021 demand still seen below 2019 levels. Consumption forecasts vary outside OPEC. Oil companies have cut long-term crude price outlooks as demand prospects fade – slashing the value of their assets as a result.
It leaves OPEC with a mounting challenge. Most members of the group, which sits on 80% of the world’s proven oil reserves, rely heavily on crude. Oil prices, now hovering above $40, are still well below the level most governments need to balance their budgets, including Saudi Arabia, OPEC’s de facto leader.OPEC, whose output accounts for about a third of world supplies, is no stranger to crises.
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