A partial recovery from the previous year's decline is expected by 2021

OPEC warns that the expansion of COVID-19 threatens recovery

photo_camera AFP/RYAD KRAMDI - OPEC Headquarters

OPEC warned on Thursday that new, more contagious strains of IDOC, increased infections and slower vaccination processes could dampen economic recovery and global demand for oil in at least the first quarter of 2021.

World oil demand fell by a historic 9.8% to 90 million barrels per day (mbd) in 2020 and will only recover part of that decline this year, while economic uncertainty continues in the early part of 2021.

The Organisation of Petroleum Exporting Countries (OPEC) estimates in its latest monthly report that the world burned an average of 90.01 mbd of crude oil, a slight rise of 20,000 barrels per day compared to estimates made a month ago.

By 2021, a partial recovery from the previous year's fall of 5.9 mbd, equivalent to 6.5%, is expected, the same figure as the previous month, although the OPEC considers that economic clouds are still gathering at the beginning of 2021.

Economic uncertainty

"While a strong global economic recovery is very likely in 2021, the depth and magnitude of the rebound remains uncertain," OPEC analysts assess.

"New virus variants have emerged, there is still a significant increase in infections - particularly in Western economies - and vaccination programmes in large economies have had a slow start, factors that may tarnish the recovery, at least in the first quarter," they add.

Because of the remaining shadows, OPEC has maintained its estimates of world economic growth in 2021 at 4.4%, despite the fact that it considers that there is a greater "upside potential".

Large economies such as Germany, China, the United Kingdom and Japan have imposed new restrictions to contain new Covid-19 strains, while the speed of vaccination programmes remains disappointing.

In recent weeks optimism about coronavirus vaccines seems to have lost strength in the face of negative news about the spread of the virus.

"Uncertainties remain high and the main downside risks are problems related to covid-19 containment measures and the impact of the pandemic on consumer behaviour," the report says.

Recovery in the second quarter

However, OPEC believes that as time goes by the vaccine will open a process of definitive reactivation of the world economy at the end of the second quarter and that it will gain momentum in the summer.

"It is expected that this impulse will be led by consumption, especially in the services sector, and particularly in the areas of travel, leisure and hospitality," consider the analysts of the oil group.

The accumulation of purchasing capacity due to the months of confinement and the monetary stimuli will help this upturn, which in the northern hemisphere will coincide with the summer season, according to the report.

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OPEC says its forecasts for 2021 are based on "a vigorous recovery in economic activities, including industrial production, an improvement in the labour market and higher vehicle sales than in 2020".

"As a result, oil demand is expected to increase steadily this year, supported mainly by transport and industrial fuels," the group's experts conclude.

World production

With regard to oil supplies, OPEC's competitors pumped an average of 62.69 mbd in 2020, a drop of 2.5 mbd mainly due to decreases in production in Russia, Canada and the United Kingdom. By 2021 they are estimated to produce an average of 63.53 mbd.

The volume of barrels that the world demanded in 2020 from the 13 OPEC members stood at 22.2 mbd this year, 7.1 mbd less than in 2019, and is estimated to rise to 27.2 mbd in 2021, according to the report.

The OPEC and a group of allies, led by Russia, decided last May to withdraw 9.7 mbd from the market to address the collapse in prices owing to the coronavirus crisis.

This cut was moderated to 7.7 mbd in August and was eased again in January by 0.5 mbd, to 7.2 mbd.

In February the cut was to be reduced by another half million barrels, but the spread of infection and new restrictions in many countries put a brake on this possibility.

After marathon negotiations, the energy ministers of the OPEC+, the alliance between the organisation's thirteen partners and ten allied producers, agreed on 5 January to reduce their supply by over 900,000 mbd, though this was only due to unilateral and voluntary action by Saudi Arabia.

Riyadh will close its taps at one million barrels per day during February and March, months in which it will pump 8.25 mbd, while Russia and Kazakhstan will increase their extractions by 65,000 and 10,000 barrels per day, respectively.

The price of the OPEC reference barrel traded on Wednesday at $55.81, amid a clear upward trend that has been in evidence since the beginning of November, with a cumulative rise of 55.5%, or almost $20.

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