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The OPEC+ has agreed to cut supply by about 7.7 million barrels per day for the rest of this year while maintaining a supply cut of 5.8 million barrels per day starting in 2021.
Oil prices have continued to drop as the COVID-19 cases around the world surges and an imminent lockdown for the second time this year beckons, a situation that began in May. Per a Reuters report, the global oil prices have seen a consistent drop for about four days in a row as Libya continues to boost its supply lines.
Several analysts have expressed a pessimistic view over the global oil prices as the coronavirus cases both in Europe and the United States may bring about additional strain in demand following a probable strain in the global supply chain. Brent Crude futures dropped by 0.8% or by 32 cents on Monday to $42.30 per barrel while the United States West Texas Intermediate (WTI) crude futures plunged by 26 cents to trade at exactly $40.57 per barrel.
The dwindling oil prices and its projected future strain due to COVID-19 have prompted members of the Organization of Petroleum Exporting Countries (OPEC) and its associated allies collectively known as OPEC+ to reveal their strategy to help back the oil markets. The OPEC+ has agreed to cut supply by about 7.7 million barrels per day for the rest of this year while maintaining a supply cut of 5.8 million barrels per day starting in 2021. The expectation is that this move will help maintain the oil prices to stay in the healthy range due to limited supply.
However, Vivek Dhar, an analyst at Commonwealth Bank Commodities has expressed uncertainty in the capability of the global oil markets to take in the 2% surge in the supply of petroleum products in 2021. Nonetheless, he noted that Libya’s stance to continue to churn in about 150,000 barrels per day may add to the oversupplied markets that OPEC+ is working hard to address.
Oil Prices Dip Caused by COVID-19 May Further Stir Recession
One of the immediate impacts of the oil prices plunge as the resurging cases of COVID-19 will cause will be to plunge the economies of oil-exporting countries into a recession. As Oilprice.com reported, the International Monetary Fund (IMF) has forecasted oil prices not to exceed the $40 to $50 range by 2021, a move that will strain most economies that plans its budget above that price range, Saudi Arabia a major example.
The ensuing economic impact caused by a shrink in oil prices will have different impacts for oil-exporting countries and oil-importing nations with the former taking the bigger hit. IMF director Jihad Azour noted that while oil-exporting countries will experience a contraction of up to 6.6%, oil-importing will experience a contraction of up to 1.3%.
A strong way out from the impending economic crises should the coronavirus pandemic progressing increasing cases would be for nations to diversify their revenue streams and not solely dependent on oil whose price is neither stable nor bound to be stable in months to come.