“Oil prices expected to ease, but expect a bumpy ride on the way down”
In the aftermath of the short-lived ‘oil war’ between Saudi Arabia and Russia, the Organization of Petroleum Exporting Countries and their allies, known as OPEC+, agreed to a coordinated reduction in oil production. Each member was given a production quota to stick to. Meetings are held regularly to determine whether they are still appropriate. As authorities gradually rolled back the hard lockdown restrictions of 2020Q2, economic
activity resumed, and oil demand began to pick up. However, OPEC+ was hesitant to ease production cuts and increase output quotas. This resulted in a significant rebound in the oil price in the second half of 2020/2021 since the rate at which OPEC+ gradually increased production failed to keep up with rebounding demand. The demand recovery was fuelled by
Oil producers slow to expand production after pandemic
unheard-of fiscal and monetary policy support measures in advanced countries. Producers outside of OPEC+ have also been slow to increase production, whether by choice or inability. During the peak of the pandemic, many oil companies put less money into maintenance and investment. This has limited their ability to ramp up production and led to a tight oil market.
This chapter was written in collaboration with Ms. Tracey-Lee Solomon from the Bureau for Economic Research at the University of Stellenbosch.
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