LONDON- OPEC is unlikely to increase oil output as planned from January next year as it could mean adding more downside pressure to the already bearish and weak market, top traders said on Tuesday.
OPEC is due to taper their production cuts by 2 million barrels per day in January. OPEC and other major oil producers announced record oil cuts in March this year as fuel demand collapsed with half the world in some form of lockdown to stop the spread of COVID-19.
“I don’t think OPEC will increase production in January…If they do, the market will test them to the downside,” Pierre Andurand, founder and chief investment office at Andurand Capital, told the FT Global Commodities Summit.
Both Andurand and Trafigura’s co-head of oil Ben Luckock said they saw oil prices only recovering to $50 a barrel by the end of next year, from around the current $40.
“2022 is the earliest when prices can go higher,” Trafigura’s co-head of oil Ben Luckock said.
“I’m not upbeat about this market in the next couple of months. Floating storage is currently not beneficial as it used to be at the start of the crisis. You really cannot stretch it beyond Christmas…It is borderline economics.”
He added that a Joe Biden win in the US presidential election, his policy changes could add even more downward pressure to prices as Venezuelan and Iranian output would likely come back.
The biggest weight on markets remains jet fuel. Refineries have been trying to find creative ways to blend the product but there is still an unavoidable oversupply and some plants will be forced to shut down.
Andurand said he did not see jet fuel demand returning to pre-pandemic levels before 2022 in the best case scenario, which assumes a viable vaccine by mid-next year.
Traders see a potential supply squeeze in the next few years due to underinvestment in new output. Andurand expects only a short period of high prices, if they come, as he sees global oil demand peaking by 2028-2029, earlier than some other executives have predicted.
He added that the pandemic had revealed the fragility of the global economic system and the impact from climate change could be even bigger.
“There won’t be a vaccine to fix climate change.”
Oil prices fell for a second day on Wednesday, extending big losses from the previous session amid rising concerns about fuel demand as the coronavirus pandemic worsens.
Brent crude dropped 23 cents, or 0.6 percent, to $41.03 per barrel. West Texas Intermediate fell 26 cents, or 0.7 percent, to $39.29.
The benchmarks fell more than 3 percent on Tuesday as global COVID-19 cases passed 1 million, having doubled in three months.
“It is important to keep in mind that moves to the downside have the potential to be supersized,” given rising coronavirus cases and increasing oil supplies around the world, said Bob Yawger, director of energy futures at Mizuho in New York.
CEOs of the world’s biggest trading companies are forecasting a weak recovery for oil demand and little movement in prices in the coming months and potentially years.
Weighing heavily on markets is the continued depressed demand for jet fuel, with air travel in the doldrums due to coronavirus restrictions and a general disinclination to travel.