BAKU, Azerbaijan, April 15
By Leman Zeynalova – Trend:
The measures announced by OPEC+ and the G20 countries won’t rebalance the market immediately, Trend reports citing the Oil Market Report of the International Energy Agency (IEA).
“But by lowering the peak of the supply overhang and flattening the curve of the build-up in stocks, they help a complex system absorb the worst of this crisis, whose consequences for the oil market remain very uncertain in the short term. There is no feasible agreement that could cut supply by enough to offset such near-term demand losses. However, the past week’s achievements are a solid start and have the potential to start to reverse the build-up in stocks as we move into the second half of the year,” reads the report.
IEA believes that the OPEC+ and G20 initiatives will impact the oil market in three ways.
“First, the OPEC+ production cut in May to reach the baseline will actually be 10.7 mb/d and not 9.7 mb/d, as April production was high. This will provide some immediate relief from the supply surplus in the coming weeks, lowering the peak of the build-up of stocks. Second, four countries (China, India, Korea and the United States) have either offered their strategic storage capacity to industry to temporarily park unwanted barrels or are considering increasing their strategic stocks to take advantage of lower prices. This will create extra headroom for the impending stock build-up, helping the market get past the hump. Third, other producers, with the United States and Canada likely to be the largest contributors, could see output fall by around 3.5 mb/d in the coming months due to the impact of lower prices, according to IEA estimates,” reads the report.
The loss of this supply combined with the OPEC+ cuts will shift the market into a deficit in the second half of 2020, ensuring an end to the build-up of stocks and a return to more normal market conditions, according to the IEA.
“At the time of publication, we were still waiting for more details on some planned production cuts and proposals to use strategic storage. If the transfers into strategic stocks, which might be as much as 200 mb, were to take place in the next three months or so, they could represent about 2 mb/d of supply withdrawn from the market.”
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