Why OPEC Increased Crude Oil Demand Forecast for April Report?

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Summary

  • OPEC has increased the crude oil demand forecast by 6.6 per cent for 2021 in its April's Monthly Oil Market Report.
  • The cartel made this upward revision in demand projections based on the surge in oil demands amid accelerated economic recovery.
  • During the start of April, OPEC+ decided to ease the production cuts due to enhanced crude oil demands.

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The Organisation of the Petroleum Exporting Countries (OPEC) on Tuesday revised its forecast for 2021 crude oil demand on hopes that coronavirus pandemic will subside during the year. This would provide an opportunity for better economic recovery, thereby increasing the crude oil demand.

In its Monthly Oil Market Report (MOMR) released on 13 April 2021, the cartel projected an increase of 6.6 per cent or 5.95 Mbpd in the crude oil demand this year. The upward modification denotes a difference in tone from earlier months, where the OPEC had brought down the estimates in view of proceeded lockdowns. A further recovery could support the case for OPEC+ to further elevate estimates.

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Robust Oil Demand:

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The cartel has increased the 2021 oil demand forecast by 190,000 bpd compared to March’s MOMR report. Global oil demand is now expected to be around 96.46 Mbpd for the entire 2021.

Earlier, the demand expectations had been lowered, and the production cuts were followed by OPEC and its allied members for the entire year due to subdued oil demands amid the ongoing pandemic lockdowns. The latest increase in current demand is powered by better-than-expected economic rebounds. Enhanced worldwide vaccination programs have paved the path for such a robust economic recovery.

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Twenty per cent of the US population has been vaccinated, Israel has completed around 57% vaccination. However, on the broader scale, less than 10% of the world's population has received the first dose, in which few countries are struggling to reach the 20% mark by the end of 2021.

OPEC+ Production Cuts:

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At the start of this month, OPEC and its allied members, combinedly known as OPEC+, agreed to ramp up the crude oil production on the expectations of the rising oil demand over the summers. Saudi Arabia has also planned to ease its unilateral production cut of 1 Mbpd.

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The decision to ease the production was witnessed after the intervention of the US, which had asked Saudi Arabia to keep the prices affordable for consumers.

The report also states that OPEC has produced ~200,000 bpd higher during the last month as Iran got an exemption from voluntary cut because of the US sanctions. In addition to that, Iraq recorded the fifth-largest increase in oil production i.e., 64,000 bpd, where it was expected that the country would produce below its allowed quota to balance previous over supplies. The UAE has also increased its production by 96,000 bpd q-o-q.

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ASX-listed oil companies, including Origin Energy (ASX: ORG), Beach Energy (ASX: BPT), Viva Energy (ASX: VEA), Karoon Energy (ASX: KAR), and Ampol Limited (ASX:ALD) got a boost from the current OPEC update.

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