OPEC, specifically Saudi Arabia has blinked on global oil production curbs.
Confidence in the current level of global oil prices will take hit from reports that Saudi Arabia wants to slash the 9.7 million barrels a day production cut due to expire at the end of the month.
Media reports at the weekend said the OPEC + group, which includes Russia and several smaller producers will be asked to approve a Saudi move to trim the 9.7 million barrel reduction by 2 million barrels a day, to apply from August 1.
While the 7.7 million barrels a day figure was talked about in April when the cuts were established, it was to apply from July 1. That was pushed back a month and now the Saudis seem desperate to make sure it starts.
In April, Saudi Arabia, the world’s largest oil exporter, led a push that saw the 23-producer group cut its collective output by 9.7 million barrels a day for May and June, as the pandemic led to a collapse of oil demand.
Now Saudi Arabia and most participants in the coalition support a reduction in the size of the cut and will put the idea, which has been discussed already, to a Wednesday meeting of the OPEC + group via the web.
The cuts, plus reduction in the US of around 1.3 to 1.5 million barrels a day have helped stabilise prices around the high $US30 to low $US30 a barrel for US crudes and Brent style oils.
Brent crude the global benchmark, is down 31% since the beginning of the year, at $US43.24 a barrel on Friday. West Texas Intermediate future, the US marker trades at around $US40 a barrel since late June after falling below zero at one point in late April. It’s down 33.7% year to date. The falls were much steeper in late March and early April.
For the week, WTI saw a 0.3% weekly fall, while Brent’s Friday gain saw a weekly rise of 1%.
Meanwhile, Baker Hughes on Friday reported that the number of active rigs drilling for oil in the US dropped by 4 to 181 last week, albeit new all-time low. That’s down 80% from a year earlier and a direct reaction to the cuts in output across the board. Two major US producers have gone bankrupt this year with more to come, according to US analysts.
News of the OPEC + group’s cut idea came two days after the International Energy Agency forecast slightly improved global oil demand for this year but said much hinges on the progression of the pandemic.
“The recent increase in Covid-19 cases and the introduction of partial lockdowns introduces more uncertainty to the forecast,” the IEA said in its July report.
The Agency estimated that global oil demand this year will average 92.1 million barrels a day, down 7.9 million barrels a day from 2019, a slightly smaller decline than forecast in the June forecast.
“This is mainly because the decline in 2Q20 was less severe than expected,” it said. For 2021, demand will be 97.4 million barrels a day; but due to the improved outlook for 2020 the recovery, next year is lower at 5.3 million barrels a day.
In other words global demand next year will still be less than that in 2019, which will have to be matched by lower for longer levels of production, especially from OPEC, Russia and the US (which seems to have stabilised its recent fall at a still-high 11 million barrels a day).
“While the oil market has undoubtedly made progress … the large, and in some countries, accelerating number of COVID-19 cases is a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside,” the IEA said in its monthly report.
The easing of lockdown measures in many countries caused a strong rebound to fuel deliveries in May, June, and likely also July, the IEA said.
But oil refining activity in 2020 is set to fall by more than the IEA anticipated last month and to grow less in 2021, it said. That will see product prices remaining under intense pressure.