I. Global oil demand expected to recover strongly, OPEC+ may increase production as planned
OPEC and its allies expect global oil demand to see a strong recovery this year, but the recent outbreak in India has cast a shadow over the oil outlook.
OPEC expects oil consumption to increase by 6 million barrels per day this year, a source said Monday. They estimate that the surplus of fuel stocks that piled up during the epidemic will be depleted by the end of this quarter.
Last year, when the global epidemic dampened fuel demand, OPEC, led by Saudi Arabia and Russia, rescued the global oil industry from a price crash by cutting production. With economic activity returning, OPEC and its allies are now rethinking oil supply. Speaking at the meeting, OPEC Secretary General Barkindo said.
“There are positive signals for the world economic recovery and the outlook for the oil sector.”
The OPEC+ Joint Technical Committee (JTC) is more optimistic about oil demand growth in 2021 than the 5.6 million barrels per day it released a month ago, broadly in line with a report issued by the OPEC Secretariat a few weeks ago.
The JTC’s data show that the oil stock surplus will be reduced to 8 million barrels by the end of the quarter. And one of OPEC’s main goals is to deplete the world’s excess oil reserves.
OPEC+ held a Joint Ministerial Monitoring Committee (JMMC) meeting after 8 p.m. on Tuesday, a day earlier than originally planned. The meeting was conducted by teleconference. During the meeting market sources said OPEC+ would stick to its current plan to ease oil production cuts from May 1. But OPEC+ sources added that Russian representatives told ministers of OPEC+ members at the meeting that they preferred to keep the current production plan. According to Interfax, Russian Deputy Prime Minister Novak said OPEC+ should keep an eye on the status of the new crown epidemic in Asia.
JMMC expects global fuel stocks to decrease at an average rate of 1.2 million barrels per day this year, up from 800,000 barrels per day last month.
OPEC representatives also said OPEC+ will skip the ministerial meeting tomorrow and that OPEC+ members will hold the next ministerial meeting in early June to adjust the existing production agreement if necessary. A subsequent OPEC+ draft statement indicated that OPEC+ will hold its next ministerial meeting on May 28.
On Tuesday evening, Russian Deputy Prime Minister Novak said the OPEC+ JMMC group confirmed the decision to increase oil production from May to July, adding.
“The situation in the oil market is positive, demand is recovering, crude oil demand is expected to increase to 6 million barrels per day in 2021, and hopefully oil prices will remain stable until the end of the year.”
Second, the Indian epidemic is adding to the oil recovery
Recently, there has been a surge in the number of confirmed cases in India, what impact will this have on the macro economy?
JTC warns that the resurgence of the epidemic in India, Brazil and Japan could have a negative impact on global economic growth. The worsening epidemic situation in these countries could affect the recovery of oil demand.
India is the world’s third largest consumer of oil, behind the United States and China. Just a few weeks ago, India was considering restarting its economy to revive oil demand and thus push up oil prices.
However, it became clear that India’s epidemic began to deteriorate every day when Prime Minister Moody began to let his guard down, claiming that India had beaten the epidemic and allowing massive election rallies to be held.
David Fickling, a foreign correspondent, said that the current situation in India means that more people may die from Newcastle pneumonia this year than last year. The country’s deaths could be several times higher than official figures suggest.
Confirmed cases of New Coronary Pneumonia in India have already surpassed the U.S. peak and are still on the rise.
Oil prices peaked earlier in March, but have been way down since then. Perhaps it’s just a coincidence, but since the number of confirmed cases in India started climbing, oil prices have stopped rising and the rupee has clearly taken a huge hit.
The Crude Oil Volatility Index (OVX) has declined over the past few trading sessions, but remains above recent lows. Oil prices are moving in the opposite direction of the S&P 500.
The income statement of the SPDR Energy Index Fund (XLE) has turned negative, and all of the fund’s trades based on the economic reboot have underperformed.
Despite the XLE’s underperformance, the XLE Volatility Index (VXXLE) is higher compared to its lows, although it has recently moved slightly lower. If the Indian epidemic has a negative impact on oil demand, it may be the OVX and VXXLE indices that ultimately benefit. The financial blog Zero Hedge thinks it would be interesting to go long XLE volatility at current levels.
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