BAKU, Azerbaijan, Sept.9
By Leman Zeynalova – Trend:
There is the threat of supply coming back quicker than anticipated due to mounting economic pressure in OPEC+ economies, which are currently suffering from a double whammy: lower volumes and lower prices, Trend reports with reference to Rystad Energy.
The market is fragile and if traders have been enjoying a summer utopia, they finally woke up to the reality of the oil demand recovery’s prospects, the company said.
“Our liquids balances now point to a just-balanced market that could very quickly tip over if OPEC+ members start to reduce compliance, or if fears of a worsening demand outlook become a reality.
In addition, our current balances outlook shows that the market will fall short of the titanic task of eliminating the surplus that was accumulated during the first half of the year,” said Rystad Energy.
As a result, inventories are expected to remain at high levels for longer, pressuring prices well into 2021.
Looking at the bigger picture, the current bearish price correction was inevitable. It is not only the demand-side of the equation that is looking increasingly worrying.
Fitch Solutions believes further oil production declines by OPEC+ in July, if any, are likely to be marginal and from August supply is set to rise.
“Market management by OPEC+ has been unprecedented. In May, OPEC and Russia removed around 8.90mn b/d of oil from the market – equivalent to around 9 percent of global supply – and in June cleared a further 1.43mn b/d. However, further declines in July, if any, are likely to be marginal and from August supply is set to rise. Under the agreed schedule, cuts will decline from 9.7mn b/d 7.7mn b/d effective August 1. Those markets that have been non-compliant with the deal – notably Iraq and Nigeria – have committed to increase their share of the cuts in the coming months as compensation. While this will help to offset gains elsewhere, although (in and of itself) will be insufficient to prevent significant increases in the group’s output. It is also our view that the core GCC producers – Saudi Arabia, Kuwait and the UAE – will be sensitive to price action and may limit the growth in their production, should market conditions dictate it.”
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