For the 2021 calendar year, there will be 5.8 million barrels per day crude production cuts. These cuts are an effort to balance the current oversupply due to COVID-19 with an estimated demand forecast for the year.
Recently OPEC+ is discussing the idea of increasing the cuts in accordance to adjusted demand forecasts. The estimated proposal for overall production cuts for the 2021 calendar year could be in excess of 7.7 million barrels per day. This indicates the current cuts combined with the recent surge in COVID-19 cases have not proven to be enough to curtail the consistent over supply on the global crude markets.
In the US alone, daily averages have increased to 100k cases daily over the last week. Hospitals are feeling the stress with the increase in caseloads. Just a few months ago, we had all bought into the “flattening-the-curve” but have since forgotten the necessary practices to keep COVID-19 at bay. With the UK experiencing a strong second wave 1st hand, how long will it be until the US encounters the same or encourages a curfew across the country to protect the American people from ourselves? Europe is currently accounting for half of the daily death toll from the virus and is attempting to make corrective actions by announcing their 4-week lockdown. This will undoubtedly add to the glut of underutilized crude which would seemingly drive prices down with an even more drastic supply glut.
While suppressed prices seem good for the consumer today, if margins remain historically low this could eventually push out competition in the market so when the demand returns, there could be an immediate steep increase, and flip the consumer prices 180 degrees.