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OPEC in Tremendous Whammy: Downgrade in Crude Prices, a Sign of Emergency

The Organization of the Petroleum Exporting Countries (OPEC) which coordinates and unifies the petroleum policies of its Member Countries and ensure the stabilization of oil markets has recently published its Monthly Oil Market Report (MOMR) on Wednesday, March 11, 2020, in which it has stated that the outbreak of Covid-19 has severely affected the crude demand which displays almost-zero growth projection for this year due to slower global economic growth. Moreover, the global oil demand for the year 2020 is expected to rise by a shear margin of 60,000 barrels per day, which was previously expected to shoot up to 920,000 barrels per day. In the last week, OPEC had already dropped its estimates for the growth in oil demand which was expected to be 1.1 million bpd in December but is actually anticipated to grow merely by 480,000 barrels per day in 2020, which is down to 2.4 percent from a forecast of 3.0 percent growth in OPEC’s last month’s report. The International Energy Agency (IEA) too warned that the coronavirus outbreak is going to disintegrate the oil economy, and will be held responsible for the staggering dip in the global crude demand which will be recorded at 90,000 barrels per day year on year in 2020. OPEC also warned that the adverse effect on transportation and industrial fuel due to the outbreak of coronavirus will turn out to be the main reason for the decline in oil growth. On the other side, the U.S., the non-OPEC country, is expected to witness a growth of 1.8 million barrels per day, which is 500,000 barrels per day less from that of the projected growth. Since the production cost of crude in the Middle East and African countries is comparably less than in the US and Canada, therefore, recent oil price collapse will hurt future production in the states. OPEC also recommended that to stabilize the already fragile global economic situation, a well-coordinated and globally acceptable policy action of all the market players is needed in the first place.