BAKU, Azerbaijan, April 14
By Leman Zeynalova – Trend:
Full compliance with the new OPEC+ deal is unlikely in reality, Trend reports citing UK-based Capital Economics research and consulting company.
“Many OPEC member states, and Russia, have poor records on compliance. In earlier output cut arrangements, Saudi Arabia reduced output by more than its quota. However, in the last few months, the Saudi energy minister has made it clear that the Kingdom is not prepared to do all the heavy lifting. Accordingly, we do not expect Saudi production to fall much below 8.5m bpd, which would be its quota on the basis of a 22 percent cut by all OPEC+ producers. (This is our estimate – OPEC has not published country-specific quotas.),” reads the report.
“As we expect oil prices to remain low in the second quarter, our supply forecasts assume that US and Canadian production will fall over the remainder of this year. “
The upshot is that output cuts will slightly reduce the pressure on oil storage facilities and could put a floor under prices, even though we suspect that compliance will be less than perfect. “Nevertheless, we re-iterate our view that oil prices will hover around current lows until containment measures are lifted.”
Assuming full OPEC+ compliance and gradually declining North American supply, the market will remain in a sizeable surplus in Q2 2020, not least because of particularly high OPEC+ supply in April.
The 10th (Extraordinary) OPEC and non-OPEC Ministerial Meeting held via videoconference, 12 April 2020 decided to adjust downwards the overall crude oil production by 9.7 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 7.7 mb/d. It will be followed by a 5.8 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.
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