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OPEC + and its allies may be ready to start pumping more crude, and that prospect is sending shivers through the oil markets.
Oil prices fell on Monday. Brent crude futures, the global benchmark, fell 1% to $ 42.80 a barrel on the day. West Texas Intermediate crude futures fell 1% to $ 40.18 a barrel.
Oil stocks fell, with Exxon Mobil (XOM) falling 0.5%. If oil falls below $ 40, the industry rally could be in jeopardy.
The alliance is scheduled to meet on Wednesday to discuss its production agreement. Currently, the group has voluntarily reduced production by 9.7 million barrels per day, or about 10% of normal global production. Under the agreement the group extended last month, the cut would be cut to 7.7 million barrels this month.
Oil demand returns as global blockades to curb the coronavirus ease. Demand fell to 84.4 million barrels per day in the second quarter, but could end the second quarter at around 95 million barrels, according to the US Energy Information Administration. Petroleum Exporting Countries, continuing to keep barrels out of the market, risks losing market share for US producers and others. Producers around the world have started to bring oil wells back online after shutting them down during the initial coronavirus surge.
That said, a resurgence of the virus in various parts of the world threatens to derail that progress. As cases grow in states like Texas and Arizona, for example, fewer people drive, and therefore use less gasoline. Increased production could increase global oil surplus and depress prices.
“OPEC + could justify the designated increase in production from now on, but if the virus continues to increase worldwide for the next week, the demand forecast will change and the oil market could fall back into excess territory offer, “wrote analyst Edward Moya at forex broker Oanda. “With record oil inventories, the 23-nation alliance is eager to restore lost oil revenues, so it seems that a tantrum is inevitable regardless of whether the cut in production extends for a month.”
This week, investors will get their first glimpse of how OPEC sees the rise in coronavirus cases, and whether the group sees it as a global issue or one that is primarily emerging in certain areas and may be contained.
The International Energy Agency has already raised red flags on the resurgence and suggested that the second half of the year could be bumpy.
“The second wave appears to be manifesting at the regional level, with large breakdowns of cases in the United States and Brazil, and although this carries a downward risk to oil demand, OPEC may view it as a regional, not global, market for be managed, “wrote Rystad Energy. analyst Louise Dickson.
Write to Avi Salzman at [email protected]
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