FDC: Oil demand does not support lessening of OPEC cut

Financial Derivatives has cautioned against the lessening of OPEC's production cut mandates in January, citing the current global oil demand that has yet to fully recover from pre-pandemic levels. The assessment comes as OPEC members gather for a crucial meeting on December 1st to deliberate on production levels alongside their allies. Bellumi Osode, Senior Economic Analyst at Financial Derivatives, highlighted the impact of the recent discovery of promising vaccine candidates on the discussions. While there is optimism about the potential effect of vaccines on the global economy, uncertainties surrounding the second wave of COVID-19 and its impact on economic activities remain crucial factors to consider. Osode also discussed the variations in compliance levels within OPEC member countries, pointing out that some nations have exceeded their production quotas, leading to an oversupply of oil in the market. This oversupply could put downward pressure on oil prices, which have seen a recent rally driven by vaccine news and market dynamics. Looking ahead, Osode predicted a slight improvement in the contraction of the oil sector in Q4, but emphasized the need to closely monitor global economic activities and oil production levels. As Nigeria prepares its 2021 budget with a $40 per barrel oil benchmark, Osode deemed this figure safe given current uncertainties. However, he expressed optimism that improved global economic conditions and increased oil demand could potentially drive oil prices higher in 2021, leading to a stronger fiscal position for the government and positive implications for revenue allocation and fiscal deficit reduction. The conversation with Osode underscored the delicate balance between market realities and forecasts, urging caution and strategic planning in the face of ongoing uncertainties surrounding the global oil market.