BAKU, Azerbaijan, Feb.13
By Leman Zeynalova – Trend:
North Sea Brent closed at about $56 per barrel in London on 12 February, which represents a fall of 17 percent since 6 January and it is of course a matter of serious concern for OPEC and non-OPEC countries, which are often very dependent on oil revenues and on oil prices, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.
He noted that on 6 December 2019 OPEC countries (14 states) and 10 non-OPEC countries (this coalition is often named OPEC+ by the media) had decided to increase by 500,000 barrels per day to 1.7 million b/d their production cuts from 1 January 2020.
“Several countries, mainly Saudi Arabia, said that they would continue to apply additional voluntary contributions of 400,000 b/d. If we add these commitments total production cuts would reach 2.1 million b/d since 1 January 2019. These decisions were taken at the end of 2018 and at the end of 2019 before the coronavirus infection, which led to a significant fall in oil prices due to the negative impacts on China's oil consumption and imports and to this country's weight on the world oil market. China is the second-largest oil consumer and the largest importer,” said the expert.
Perrin said that the Joint Technical Committee (JTC) recommends to extend until the end of 2020 the production cuts described above and to reduce further OPEC+'s production until the end of the second quarter of this year.
“These two recommendations are supported by the President of the OPEC Conference, Mohamed Arkab, who is Algeria's Energy Minister. Mr. Arkab stressed that ''the situation is clear; it requires corrective action in the interest of all''. The first recommendation will very probably be easy to implement but it will not be the case for the second one as shown by the difficult discussions within the JTC over three days on 4-6 February and the reluctance of Russia, the world's second-largest oil producer, to further reduce its output. Saudi Arabia, the de facto leader of OPEC, is willing to cut its production but it is clearly not a done deal. Any decision will require a meeting of the OPEC's ministerial Conference and an OPEC/non-OPEC meeting. An extraordinary meeting of the Conference should take place on 5 March and an OPEC/non-OPEC meeting on 6 March, as decided in December 2019. It remains to be seen if it is possible for all these countries to meet before the beginning of March,” the expert explained.
He pointed out that the coronavirus crisis is a strong bearish factor on oil markets but it remains a short-term factor.
“It is the reason why the JTC is recommending a further production cut until the end of the second quarter of 2020 only. China's economy will rebound after the end of this crisis and it will then have a bullish impact on this country's oil consumption and imports. It is not a medium-term or long-term challenge for OPEC as the rise of the United States' oil production, a trend which began 12 years ago. The coronavirus issue is a matter of months, some months or several months, not of years. But, in a short-term period, it constitutes a significant threat for OPEC and non-OPEC producers,” said Perrin.
UK-based Capital Economics research and consulting company maintains its view that OPEC+ will extend its current output quotas until the end of this year to support prices.
“In fact, OPEC+ production will probably be lower this year than previously thought as the recent blockade of Libya’s oil ports by Field Marshal Khalifa Haftar has already forced Libyan output to be slashed by around 1m bpd. Admittedly, Brazil and Norway will still ramp up output, but we also think that growth in US supply will slow owing to reduced capital investment. All told, our current estimate is that global production will grow from 100.5m bpd in 2019 to 100.7m in 2020 and it could be even lower if OPEC+ enact deeper output cuts, as hinted recently by some members,” said the company.
---
Follow the author on Twitter: @Lyaman_Zeyn