IHS Markit: Multiple adjustments expected in crude oil market

IHS Markit: Multiple adjustments expected in crude oil market

BAKU, Azerbaijan, March 26

By Leman Zeynalova – Trend:

Multiple adjustments are expected in the crude oil market worldwide, Trend reports with reference to the analysis of IHS Markit.

The company believes that crude oil market seems to be transitioning into a new era.

"Global demand growth seems rather fragile, with China, its major driver, having significantly reduced its requirements due to the outbreak of the coronavirus. After falling to 4.7 million b/d, Chinese seaborne imports have been recovering, but remain close to eight million b/d. As if this hit to demand wasn't enough, the industry now faces the risk of global supply of crude oil expanding much faster than earlier anticipated, pushing oil prices to lower levels," said the company.

IHS Markit recalls that the unsuccessful effort by OPEC to persuade Russia to further increase production cuts is now followed by major producers such as Saudi Arabia now planning to increase their production and exports close to or even above historic capacity.

"Saudi Arabia has so far been leading the OPEC+ production cut deal, with last year's exports down by around 9 percent vs 2018. A similar approach to observe so far this year, with last month's shipments down almost 10 percent year-on-year. However, March is expected to be the last month of this approach. Aramco's CEO has just announced that his company will raise its crude supply from early April, which could reach 12.3 million b/d. This is 300,000 b/d more than the company's maximum sustained capacity, as he noted," reads the analysis.

Focusing on the country's crude oil liftings, based on most recent data by IHS Markit Commodities at Sea, it has become quite clear that Saudi Arabia has focused efforts on China during last year.

"Up to 30 percent of its crude shipments were heading for the world's largest importer of crude oil. Volumes have been declining early this year, with the impact of the coronavirus clear. However, the oil war between Russia and Saudi Arabia and the collapse of oil prices are expected to reshape the country's crude oil trade flows," said the company.

"Refiners across the world would consider increasing their inputs from Saudi Arabia due to the lower prices. Even minor importers which absorbed around 16 percent of Saudi Arabian exports last year are understood to be in discussion regards importing more from next month onwards. This could shape flows to European refineries as well, especially as Libya's collapse has created a gap to be filled from elsewhere. Competition between Saudi Arabia and other producers across the Middle East, West Africa, Russia and the USA is set to increase."

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Follow the author on Twitter: @Lyaman_Zeyn

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