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JP Morgan: OPEC deal extension to expedite market rebalancing by 2 months

Oil&Gas Materials 8 June 2020 15:56 (UTC +04:00)
JP Morgan: OPEC deal extension to expedite market rebalancing by 2 months

BAKU, Azerbaijan, June 8

By Leman Zeynalova – Trend:

The one-month OPEC+ deal extension will expedite market rebalancing by two months with global markets moving into a firm deficit in July, Trend reports citing the US JP Morgan Bank.

“Numerically, each additional month of extension shaves almost 3 mbd from forecasted global supply (1.7 mbd from OPEC+ and 1.2 mbd from Saudi/UAE/Kuwait), and trims 90 million barrels from projected inventories. Our global oil balance suggests that without the extension of production cuts, the global oil market would have moved into deficit only in September,” the bank said in its report.

Iraq and Nigeria agreed to compensate for their excess production in May and June, with deeper cuts in July-September.

“In terms of compliance, we assume almost perfect adherence from Saudi Arabia and Russia, pretty close for UAE and Kuwait, and less so elsewhere. To recognize the extra pressure to comply, we assume some adjustments for better conformity from cash-strapped Nigeria and Iraq,” said JP Morgan.

“Mexico’s 100 kbd cut as part of OPEC+ ends at the end of June. This is in line with our supply forecast. Also over the weekend, Libya’s National Oil Corp. announced that Libya’s 300 kbd Sharara and 120 kbd El Feel oilfields had resumed production after a five-month shutdown. Operations at El Sharara will commence at an initial 30 kbd and take three months to return to full capacity. With these adjustments, OPEC 13 production will be scaled lower from 24.6 mbd in May to 23.3 mbd in June and 23.2 mbd in July but still should exit the year at 26.6 mbd in December. “

At the current time, JP Morgan believes that the primary risk to its view on US production in June is the timing of the return of voluntary production curtailments.

“Our view is predicated on the messaging received during the 1Q20 earnings season, further supported by recent announcements from several producers of their willingness to bring back curtailed production as well as increased short interest from commercial entities in WTI positioning data (likely primarily hedging from producers). However, we are cognizant that the process could be slower than we currently anticipate. If that were to be the case, then we would anticipate that offline production will still likely make its way back to market by July and/or August. However, if US production curtailments were to remain in place through June, this could be enough to tip the world balance into deficit in June, rather than our current estimate of July,” said the bank.

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Follow the author on Twitter:@Lyaman_Zeyn

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