BAKU, Azerbaijan, April 10
By Leman Zeynalova - Trend:
A genuine cut of 10 million barrels per day by OPEC+ would be very supportive of price over the second quarter, Ann-Louise Hittle, vice president, Macro Oils, Wood Mackenzie Trend reports.
“Even a 5 million b/d cut would see oil prices in the low $30s. It would ease pressure on storage and stem the steep price collapse we saw in March,” she said.
“A 10 million b/d reduction may seem small compared with the very high demand loss estimates we have seen mentioned recently, but if the curbs are implemented? It would slow the build-up in storage and avoid the surplus of supply over the second quarter, when the Covid-19 shutdowns are the extensive and demand lowest.”
Wood Mackenzie expects world oil demand to fall over 8 million b/d year-on-year for Q2 2020.
"April will see the sharpest drop, with a year-on-year decline of over 15 million b/d as coronavirus containment measures are at their steepest.
"Non-OPEC supply is growing on a year-on-year basis this quarter. However, US Lower 48 oil output dropped in both March and will continue to do so in April. By July it will be declining at a rate of over 200,000 b/d month to month. Sharply lower prices during almost all of March triggered a sharp fall in the rig count and weakening output will take time to time reverse, especially as the sector was already under pressure before low oil prices hit in early March.
"This means Q2 2020 is the most challenging period for producers and the oil market. Demand is collapsing and supply is rising. But China is slowly ending its lockdown this month. Chinese demand is also starting to see a slower rate of year-on-year decline. By the northern summer we no longer expect the dramatic declines in demand. At the same time, non-OPEC production will be declining year-on-year by Q4 2020.
"The second half of 2020 will see a gradual easing of the extreme oversupply seen in the first half of this year as the fundamentals begin shifting towards demand stabilisation. Demand will still be down, year-on-year, but the decline will not be as steep as in the second quarter and supply will start to weaken. To show the extent of the trend, for 2021, Wood Mackenzie is forecasting total global supply, including OPEC, non-OPEC, and natural gas liquids, to show no growth for year. Demand, while weak, is projected to rise in 2021 – a sharp reversal from 2020 when demand falls and supply rises.
"The crisis is extreme for the oil market but low oil prices have already had an effect on supply and the steep falls in demand will have a limited duration."
The 9th (Extraordinary) OPEC and non-OPEC Ministerial Meeting was held via webinar, on April 9.
In view of the current fundamentals and the consensus market perspectives, the Participating Countries agreed to:
Reaffirm the Framework of the Declaration of Cooperation, signed on 10 December 2016 and further endorsed in subsequent meetings; as well as the Charter of Cooperation, signed on 2 July 2019.
Adjust downwards their overall crude oil production by 10.0 mb/d, starting on 1 May 2020, for an initial period of two months that concludes on 30 June 2020. For the subsequent period of 6 months, from 1 July 2020 to 31 December 2020, the total adjustment agreed will be 8.0 mb/d. It will be followed by a 6.0 mb/d adjustment for a period of 16 months, from 1 January 2021 to 30 April 2022. The baseline for the calculation of the adjustments is the oil production of October 2018, except for the Kingdom of Saudi Arabia and The Russian Federation, both with the same baseline level of 11.0 mb/d. The agreement will be valid until 30 April 2022, however, the extension of this agreement will be reviewed during December 2021.
Call upon all major producers to contribute to the efforts aimed at stabilizing market.
Reaffirm and extend the mandate of the Joint Ministerial Monitoring Committee (JMMC) and its membership, to closely review general market conditions, oil production levels and the level of conformity with the Declaration of Cooperation and this Statement, assisted by the Joint Technical Committee (JTC) and the OPEC Secretariat.
Reaffirm that the Declaration of Cooperation conformity is to be monitored considering crude oil production, based on the information from secondary sources, according to the methodology applied for OPEC Member Countries.
Meet on 10 June 2020 via webinar, to determine further actions, as needed to balance the market.
The above was agreed by all the OPEC and non-OPEC oil producing countries participating in the Declaration of Cooperation, with the exception of Mexico, and as a result, the agreement is conditional on the consent of Mexico.
---
Follow the author on Twitter: @Lyaman_Zeyn