Bloomberg:
OPEC and its allies will restore some oil supplies next month, but the impact will be “barely felt” as demand recovers from the coronavirus crisis, said Saudi Arabia’s Energy Minister.
After almost three months of historic output curbs to offset the worst effects of the global pandemic, the 23-nation coalition led by Riyadh and Moscow will proceed with its plan to gradually taper the reductions. The decision was widely expected but still carries some risks for the cartel after a resurgence of the virus in the U.S., the world’s largest oil consumer.
“As we move to the next phase of the agreement, the extra supply resulting from the scheduled easing of production cuts will be consumed as demand continues on its recovery path,” Saudi Energy Minister Prince Abdulaziz bin Salman said at the start of an OPEC+ video conference on Wednesday. “Economies around the world are opening up, although this is a cautious and gradual process. The recovery signs are unmistakable.”
The Organization of Petroleum Exporting Countries and its allies will withhold 7.7 million barrels a day from the market in August, compared with cuts of 9.6 million currently. The group’s two largest members, Russian and Saudi Arabia, publicly backed the move, and other ministers participating in the video conference had agreed in principle, delegates said.
That supply increase will be offset somewhat by members that didn’t fulfill their commitments to reduce output in May and June -- such as Iraq and Nigeria. They will make up for those shortcomings with extra reductions in August and September.
Those compensation cuts are a crucial principle and the group must resist the temptation to relax, Prince Abdulaziz said. The kingdom’s own exports won’t change next month, despite the output increase, as domestic demand rises, he said.
The tapering of production cuts is “fully in line with the current market trends,” said Russian Energy Minister Alexander Novak. “Almost all of the output hikes will be consumed in domestic markets of the producing countries as the demand is recovering.”
OPEC+ is reviving supplies as fuel consumption picks up with the lifting of lockdowns around the world. The alliance’s curbs, equivalent to almost 10% of global supply, helped more than double crude prices from the lows hit in late April, when demand plunged by more than 20 million barrels a day.
OPEC+ Update July 15
OPEC+ Update July 15
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: OPEC+ Update July 15
Investing.com -- Crude oil stockpiles dropped more than expected last week thanks to a plunge in weekly crude imports, according to the Energy Information Administration.
Inventory declined 7.5 million barrels for the week ending July 11. Analysts tracked by Investing.com had expected a draw of 2.1 million barrels. Stockpiles rose 5.6 million barrels the previous week. On Tuesday, industry group American Petroleum Institute, in a snapshot of its own inventory estimates released ahead of the official EIA numbers, said crude inventories probably declined 8.2 million barrels last week.
"The OPEC, or more precisely Saudi, clampdown on U.S.-destined cargoes is really showing with the 1.8-million barrels per day plunge in the EIA number for crude imports last week," said Investing.com oil expert analyst Barani Krishnan. "Refiners are also not letting up with their gasoline and distillates production, hiking gasoline output to 9.1 million bpd and distillates to 4.9 million."
"The combined effects led to the outsized crude draw," Krishnan said. "The price action is somewhat restrained and that’s a function of the OPEC meeting, where everyone’s waiting to see if the cartel will roll back production cuts. A two-million barrel reduction in OPEC cuts could go a long way in negating the weekly crude draws seen in the U.S., particularly if the Saudis start sending more of their cargoes this way."
Aside from the Saudis, the disconnect between the second Covid-19 wave and refiner processing of crude continues, Krishnan said. “The refiner community seems to be ignoring the possibility of more clampdowns ahead, and they are literally stepping on the gas in putting out more fuel products in anticipation of demand that may not come in the way they think.”
Oil stored at the Cushing, Oklahoma, facility rose 949,000 barrels, against expectations for a build of 1.78 million barrels.
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MY TAKE: I believe that Saudi Arabia will not increase exports much if at all. I also believe they will keep pressure on other OPEC members who promise to make up in August and September for over-producing in June and July. All of the OPEC members must have higher oil prices to survive, including Saudi Arabia.
Inventory declined 7.5 million barrels for the week ending July 11. Analysts tracked by Investing.com had expected a draw of 2.1 million barrels. Stockpiles rose 5.6 million barrels the previous week. On Tuesday, industry group American Petroleum Institute, in a snapshot of its own inventory estimates released ahead of the official EIA numbers, said crude inventories probably declined 8.2 million barrels last week.
"The OPEC, or more precisely Saudi, clampdown on U.S.-destined cargoes is really showing with the 1.8-million barrels per day plunge in the EIA number for crude imports last week," said Investing.com oil expert analyst Barani Krishnan. "Refiners are also not letting up with their gasoline and distillates production, hiking gasoline output to 9.1 million bpd and distillates to 4.9 million."
"The combined effects led to the outsized crude draw," Krishnan said. "The price action is somewhat restrained and that’s a function of the OPEC meeting, where everyone’s waiting to see if the cartel will roll back production cuts. A two-million barrel reduction in OPEC cuts could go a long way in negating the weekly crude draws seen in the U.S., particularly if the Saudis start sending more of their cargoes this way."
Aside from the Saudis, the disconnect between the second Covid-19 wave and refiner processing of crude continues, Krishnan said. “The refiner community seems to be ignoring the possibility of more clampdowns ahead, and they are literally stepping on the gas in putting out more fuel products in anticipation of demand that may not come in the way they think.”
Oil stored at the Cushing, Oklahoma, facility rose 949,000 barrels, against expectations for a build of 1.78 million barrels.
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MY TAKE: I believe that Saudi Arabia will not increase exports much if at all. I also believe they will keep pressure on other OPEC members who promise to make up in August and September for over-producing in June and July. All of the OPEC members must have higher oil prices to survive, including Saudi Arabia.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group