BAKU, Azerbaijan, Dec.4
By Leman Zeynalova – Trend:
A ‘roll-over’ of the current production agreement of OPEC+ is not enough to preserve a balanced market and ensure a stable oil price environment in 2020, says Bjørnar Tonhaugen, head of oil market research at Rystad Energy, the independent energy research and consulting firm headquartered in Norway, Trend reports.
“The outlook will be bleak if OPEC+ fails to agree on additional cuts,” said the expert.
According to Rystad Energy’s estimates, the global oil market will be fundamentally oversupplied to the tune of 0.8 million barrels per day (bpd) in the first half of 2020.
Empirical evidence has demonstrated that a 1 million bpd surplus of oil can be expected to cause an oil price decline of around 5 percent per month, implying a potential drop of 30 percent over six months.
“If OPEC and Russia don’t extend and deepen their cuts, we could see Brent Blend dip to the $40s next year for a shorter period,” Tonhaugen said.
“In order to ensure a balanced market, our research indicates that OPEC would need to reduce crude production to 28.9 million bpd – a drop of 0.8 million bpd from the level seen in the fourth quarter of 2019-levels – given our forecast for demand, non-OPEC supply and the impact of new IMO 2020 regulations on global crude runs,” Tonhaugen added.
New shipping fuel regulations, the so-called IMO 2020 effect, are expected to create more demand for crude oil in the near-term. However, if the actual effect of the IMO rules on crude demand turns out to be zero the “call on OPEC” - the amount of OPEC oil needed to meet demand - drops by 1.9 million bpd year-on-year to 28.3 million bpd.
“Despite decent cut compliance from the group as a whole and large involuntary declines in Iran and Venezuela this year, OPEC’s current crude production of about 29.7 million bpd is far above the ‘call’ for 2020. Alas, without deeper cuts taking effect in January 2020, large global implied stock builds are on the cards,” Tonhaugen noted.
In late 2018, OPEC and a number of countries outside this organization (OPEC+ format) decided to modernize the terms of the agreement on the reduction of oil production, in force from the beginning of 2017. The countries agreed to reduce the total production by 1.2 million barrels per day from the level of October 2018.
On July 2, 2019, a decision was made in Vienna to extend the agreement on reducing oil production by OPEC member and non-member states until the end of the first quarter of 2020.
The 177th Meeting of the OPEC Conference is expected to be held December 5, 2019, followed by the 7th OPEC and non-OPEC Ministerial Meeting on December 6 in Vienna, Austria.
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