*Oil cartel, allies hold meeting today
Oil prices rose sharply on Friday following positive news that the OPEC and its allies – OPEC+ consider extending the record production cut of 9.7 million barrels of crude per day.
Global benchmark, Brent crude traded at $42.30 per barrel, West Texas Intermediate (WTI) traded at $39.34 per barrel and Nigeria’s Bonny Light at $41.17 per barrel.
According to Oilprice.com, OPEC+ made a breakthrough in negotiations and the group is slated to meet today, June 6, 2020 to sign off on the deal, which calls for a one-month extension of the 9.7 million barrels of crude per day cuts.
A sticking point had been the poor compliance rate from Iraq, but the Iraqi Government agreed to strict compliance, although there could be a domestic backlash from doing so.
A press release issued by OPEC said: “The 179th meeting of the OPEC Conference and the 11th OPEC and non-OPEC Ministerial Meeting that were originally planned for 9 and 10 June 2020, respectively, are now scheduled to take place via video conference on Saturday, 6 June 2020. The OPEC Conference is slated to begin at 2pm (CET), to be followed by the OPEC and non-OPEC Ministerial Meeting at 4pm (CET).”
The group will at the meeting push countries such as Iraq and Nigeria to comply better with existing production reduction quotas. OPEC countries such as Equatorial Guinea and Gabon with less significant outputs also cut their productions.
The Organisation of Petroleum Exporting Countries (OPEC) led by Saudi Arabia and the non-OPEC allies led by Russia had previously agreed to cut supply by a record 9.7 million barrels per day in May and June to shore up oil prices that collapsed due to the coronavirus crisis.
OPEC+ sources have said Saudi Arabia and Russia had agreed to extend record cuts throughout July although Saudi would prefer to see cut extended throughout August
According to Reuters, OPEC sources said an extension of cuts was contingent on compliance as countries that produced above their quota in May and June must compensate by cutting more in future months. Iraq, which had one of the worst compliance rates in May, according to a Reuters’ survey, agreed to additional cuts, OPEC sources said. However, it was not clear how exactly Iraq would cut output and agree with oil majors working in the country to curtail production. Nigeria said it would also aim to reach full compliance.
OPEC countries’ production in ascending order are Equatorial Guinea, Gabon, Congo, Algeria, Angola, Nigeria, Kuwait, UAE, Iraq and Saudi, while OPEC+ countries are Sudan, Brunei, South Sudan, Bahrain, Malaysia, Azerbaijan, Oman, Kazakhstan and Russia.
Meanwhile, China’s oil demand has recovered to more than 90 per cent of the levels seen before the coronavirus pandemic struck the Asian country in December 2019. It was a surprisingly robust rebound that could be mirrored elsewhere in the third quarter of this year as more countries emerge from lockdowns.
According to Reuters, while China – the world’s second-largest oil consumer – is the outlier for now, easing travel restrictions and stimulus packages aimed at resuscitating economies could accelerate global oil demand in the second half of 2020, industry executives said.
“The brisk resumption of Chinese oil demand, 90 per cent of pre-COVID levels by the end of April and moving higher, is a welcome signpost for the global economy,” said Jim Burkhard, vice president and head of oil markets at IHS Markit.
Wood Mackenzie expects China’s oil consumption in the second half to grow 2.3 per cent to 13.6 million barrels per day (bpd) from the same period last year, driven by increased transportation and industrial use. “By the third quarter, China’s gasoline demand would have surpassed the same period last year by three per cent to 3.5 million bpd,” the consultancy said, while diesel consumption could grow by 1.2 per cent to 3.4 million barrels per day (bpd) over the same period
“China has led the demand recovery path so far. Following this, other countries such South Korea, Australia and Vietnam where the (virus) cases are broadly under check will see an improvement in petroleum demand,” FGE analyst Sri Paravaikkarasu said.
JBC Energy analyst Kostantsa Rangelova said Asia’s total refined product demand could rise to 34.3 million bpd in the second half, up from 31.6 million bpd in the first six months, but still about 1.5 million bpd lower from the same period a year ago, mainly because of the decline in jet fuel demand.
Also, Oilprice.com said in India, the world’s No. 3 oil consumer, state refiners ramped up output in May as fuel sales recovered ahead of the lockdown lifting in June. In Japan, the fourth largest oil user, gasoline demand is expected to contract by 10 per cent in October to December, but rebound strongly from the 27 per cent contraction seen in April to June, refiner Cosmo Energy Holdings said.
In the United States – the top oil producer and consumer – road fuel demand is expected to rise to 10.6 million bpd in the second half, according to Rystad Energy, 22 per cent higher than the first half.
Therefore, it is cheery news for the global oil industry as prices may rebound beyond projections before year end.
