BAKU, Azerbaijan, April 14
By Leman Zeynalova – Trend
Overall OPEC+ compliance to stand at maximum 50 percent through May, Bjornar Tonhaugen, Head of Oil Markets, Rystad Energy told Trend.
“We would be surprised to see overall OPEC+ compliance at 50 percent through May, which is what we believe Saudi Arabia also knows. However, we do believe the deal is potentially bullish for oil prices down the line, as the deal has a surprisingly long duration with 6 million bpd cuts through the 1Q 2022 – long after the market has hopefully recovered from COVID-19 demand losses. For those who endure this downturn, 2022 looks increasingly bullish for the oil price in our view,” said the expert.
Tonhaugen said that on a positive note, OPEC+ managed to reach a historic deal to make the single largest output cut in history, after a compromise was reached with Mexico.
“However, even though OPEC+ has decided to attempt to bail out the global oil market, the group has unfortunately only come up with half of the ransom money. We believe the market’s disappointment will reflect in prices already from April due the lack of size and the speed of the supply removal. At least the global oil market may not exhaust the storage capacity as early as it would without the voluntary production cuts,” said the expert.
The oil market will see enormous stock builds in April as the deal is only in effect from 1 May, while gradual shut-ins and production declines will already happen during the current month, according to Tonhaugen.
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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