OPEC+ Set To Meet Amid Soaring Indian COVID-19 Cases

Energy

The oil market continues to struggle to find direction, with prices remaining largely rangebound. A  concern for the market is the surge in COVID-19 cases in India, where the number of daily cases has hit a record of almost 350,000. While the government has not imposed a national lockdown, we are instead seeing regional restrictions, so the impact on oil demand at least for now will not be as severe as we saw during the national lockdown last year. However, there will clearly be some impact, and some refiners in the country are already reacting to weaker fuel demand by reducing run rates. Bloomberg reports that Mangalore Refinery and Petrochemicals Ltd. cut refinery throughput by 15%  in April, and this could be further cut over May. If the situation in India fails to improve any time soon, its likely only a matter of time before other refiners follow by cutting operating rates, which would not be great for crude oil demand, particularly when you consider that India is the third largest crude oil importer, behind China and the US.

Source: iStockphoto

The situation in India is likely something that OPEC+ ministers will discuss when they meet on Wednesday. OPEC+ are set to hold their full ministerial meeting, despite earlier suggestions that the group might skip it, given that they have already agreed on their production policy until the end of July. While some OPEC+ members may be concerned about the situation in India, we do not believe that the group will drift from its policy of easing output from 1 May.

It is not jut the demand uncertainty that OPEC+ will have to deal with, they will also need to consider the possible outcome of Iranian nuclear talks, and what this would mean in terms of additional supply coming onto the market. Talks are still ongoing and will enter a third week in Vienna. As we have mentioned before, the impact from a lifting of sanctions will be less severe the longer it takes to find a resolution. Iran in recent months has already increased supply, and so the additional supply that does eventually make a return when and if sanctions are lifted will be of less concern. We are also assuming that Iranian supply returns to 3MMbbls/d by the end of this year (up from around 2.3MMbbls/d currently), and yet our balance sheet still shows that the market will draw down inventories. Therefore, while the headline might hit sentiment, fundamentally it is not as bearish as it may appear.

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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