...

Extra cuts show sign of concern over full OPEC+ deal compliance

Oil&Gas Materials 14 May 2020 17:36 (UTC +04:00)

BAKU, Azerbaijan, May 14

By Leman Zeynalova – Trend:

Extra output cuts announced by Saudis, Kuwait and the United Arab Emirates (UAE) show a sign of concern over full OPEC+ deal compliance, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and Global Head Strategy Risk at Berry Commodities told Trend.

Saudi Arabia said it will cut oil output by another 1 million barrels a day on top of what it already agreed with OPEC allies. Kuwait and the United Arab Emirates followed up with extra cuts of their own.

“In principle I am looking at it as a sign of trouble or scaredness. The move to cut additional volumes on top of the agreed OPEC+ levels is showing that several OPEC leaders are very worried that the market is not yet going to change dramatically for a longer time. At the same time, there could also be the internal discussion and fear that other OPEC producers are not going to cut as agreed before, such as Iraq or Nigeria. The market is also looking at Russia, until now hitting almost levels agreed upon but this could be changing if economic situation in Russia is deteriorating even more,” he said.

“In my assessment, however, I would have not put any additional cuts in the market, but had the market play out the dead wood still available, before looking at fundamentals. Without a real Covid-19 opening up globally the results are still not going to make a huge difference, but taking out some of the minor instruments that OPEC leadership still holds. Under the surface it could be that Saudi-UAE again have been pressured by Washington to get more out of the market not to kill shale and onshore/offshore oil-gas in US further. If the latter is the case, and media will get on to this for sure, more turmoil in price settings is to be expected.”

The expert said some should understand that Saudi’s swing producer standpoint is not a viable one right now.

“Riyadh also is under pressure, as it finances are hit hard, and possible unrest in the Kingdom is not what the world could deal with. There should be a point for Riyadh, UAE and others to say to non-OPEC “now you all deal with the situation, we have done enough”. Whatever media is saying, or some analysts, there is too much oil in storage, cheap and available, to undermine overall prices. Saudi-UAE and Kuwait’s changes are only minor, just to be taken as a goodwill gesture, not as a fundamental support. Also, the OPEC+ move, as you indicated, can be changed very quickly, as it is only for 1 month, not for prolonged period,” added Widdershoven.

As for the upcoming OPEC meeting in June, the expert said official statements will be extremely vague, all talking about COVID, storage volumes and GDP decline.

“Real action is not going to happen, except if the simmering internal fight between Saudi-UAE-Kuwait/Bahrain and the rest is coming to the surface. Iran-Iraq-Libya-Algeria-Venezuela are looking to other measures, as their economies are in deep. A possible rift is imminent. Possible friction is there to resurface for sure,” he said.

He pointed out that potential results will be meager, in the most optimistic case.

“Possible full focus on compliance issues, and not on fundamental strategies. If crisis hits really inside of OPEC then the market is heading to a bloody period of turmoil again. Prices will be very volatile in any case, so the optimism in market right now is too early, not based on facts and driven by profit takers. COVID-recession impact is still fully unclear. US figures are dire, China is way behind what is reported, while Europe’s situation is supported by financial measures EU and governments. If these are removed, unemployment will hit the roof, aka less production economies, less demand for energy and products,” the expert concluded.

---

Follow the author on Twitter: @Lyaman_Zeyn

Tags:
Latest

Latest