BAKU, Azerbaijan, July 10
By Leman Zeynalova – Trend:
If the OPEC+ cuts stay in place as agreed, global supply could fall by 7.1 mb/d in 2020 before seeing a modest recovery of 1.7 mb/d next year, Trend reports with reference to the Oil Market Report of the International Energy Agency (IEA).
“Global oil production fell sharply in June to stand 13.7 mb/d below the April level. The compliance rate with the OPEC+ supply agreement was 108 percent. This includes over-performance by Saudi Arabia which cut production by 1 mb/d more than required, reducing OPEC crude output to its lowest point in nearly three decades,” reads the IEA report.
This solid performance by the OPEC+ group has been supplemented by substantial market-driven cuts, mainly in the United States, according to the IEA.
“Total US oil production fell by nearly 1 mb/d in April versus March and we estimate that May and June will see further month- on-month falls of 1.3 mb/d and 0.5 mb/d, respectively. However, in the second half of the year supply could start to grow: we see US production bottoming out and then slowly growing and OPEC+ countries are set to ease their existing cut by around 2 mb/d from August. Also, by the end of the year Libya’s oil production could be as much as 0.9 mb/d higher than it is today,” reads the report.
For refiners, any benefit from improving demand is likely to be offset by expectations of much tighter feedstock markets ahead, according to the IEA.
“Refining margins will also be challenged by a major product stocks overhang from the very weak 2Q20. In China, throughputs in June were estimated at a record level of nearly 14 mb/d. Global refinery runs are forecast to fall by 6.4 mb/d in 2020 to 75.1 mb/d and increase by 4.7 mb/d in 2021,” reads the report.
“Crude prices increased in June for the second successive month. North Sea Dated prices oscillated between $38-$43/bbl, supported by tighter fundamentals but capped by rising numbers of Covid-19 cases and economic uncertainty. By early July, prices were firmly above $43/bbl. The flatter contango seen recently will encourage crude stock draws. With ample stocks, product prices lagged crude, squeezing cracks and refinery margins. Freight rates continued to ease over the month,” said the IEA.
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