The warning from Prince Abdulaziz bin Salman, Energy Minister in Saudi Arabia that he is going to whoever tries to play games with the oil market will pay the price, might not be taken seriously with the fading worldwide demand, as we head into another likely COVID-19 wave, indicate that the oil might be at risk of reversing lower.
That said, the energy minister seems hell-bent to support the prices of oil, directing his remarks to the OPEC+ members who ignored the cartel imposed oil production quotas and indicating that any attempt to outsmart this market will fail and they will remain counterproductive even when they have eyes, and the growing technology.
Nevertheless, these sentiments might fail to have any significant impact based on the drastic decrease in demand that is expected by IEA (International Energy Agency), with a Paris-based intergovernmental agency that is expected recovery in demand for oil to reduce in 2020’s second half and adding that this would be a very treacherous path amidst the rising coronavirus cases.
Furthermore, with the OPEC (MOMR) monthly Oil Market Report for this month, resulting in reduced demand for OPEC in 2020 by about 0.7 million barrels per day from august to 22.6 mb/d. This is 6.7 mb/d lower as compared to 2019. It’s highly unlikely that the prices of oil will still revisit the post-covid-19 highs.
Moreover, both officials can foresee a substantial supply decline for the next one year, with the regulatory agency forecasting that the worldwide oil inventories by the end of next year will be more than 100 mb/d higher than last year. OPEC seems more pessimistic in their prediction and foresees the worldwide oil stocks about 500 mb/d over the 2019 levels.
In this regard, while Prince Abdul-Aziz’s indication that more cuts in production might temporarily affect the prices of crude oil, the technical backdrop of the plunging demand and increased supply signals a long term pattern for this commodity.