Long-term market balance depends on global economy recovery: Zanganeh

June 7, 2020 - 14:17

TEHRAN – Iranian Oil Minister Bijan Namdar Zanganeh said on Saturday that the long term increase of demand in the oil market depends on the recovery of the entire global economy, Shana reported.

“In the long-term, a growth in demand and balanced oil prices would depend on the global economic recovery,” he told reporters following an OPEC ministerial meeting.

He said the Covid-19 outbreak had left significant impacts on the global economy and the oil market.

Noting that big economic powers were set to see their economy shrink this year, Zanganeh said: “Negative economic growth in the world means lower demand for oil. During the first quarter of the current year, demand for oil was down nine million barrels per day (bpd). This reduction shows that action has to be taken urgently to keep prices from falling further.”

The official further noted that oil producers that had not complied with the previous OPEC+ production cut had promised to compensate for their non-compliance in coming months so that “the supply glut in the market would be reduced and prices would recover”.

Brent prices’ growth to above $40 a barrel showed that OPEC had made correct decisions, he said

“In the long-term, as far as the global economy does not recover and the world does not get rid of negative economic growth, demand for oil will not go and oil prices will not be balanced. But so far OPEC+ agenda has been correct,” he added.

OPEC+ agreed on Saturday to a one-month extension of its record output cuts and adopted a stricter approach to ensuring members don’t break their production pledges.

The deal is expected to underpin the oil market recovery, easing the financial pain felt by resource-dependent emerging economies, shale explorers in Texas, and blue-chip companies.

The agreement required the countries such as Nigeria and Iraq, which exceeded production quotas in May and June, compensate with extra cuts in July to September.

OPEC+ had initially agreed in April that it would cut supply by 9.7 million bpd during May-June to prop up prices that collapsed due to the coronavirus crisis. Those cuts were due to taper to 7.7 million bpd from July to December.

Benchmark Brent crude climbed to a three-month high on Friday above $42 a barrel, after diving below $20 in April. Prices still remain a third lower than at the end of 2019.

As global lockdowns ease, oil demand is also expected to exceed supply sometime in July but OPEC has yet to clear 1 billion barrels of excess oil inventories accumulated since March.


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