Page 7 - LatAmOil Week 11 2020

LatAmOil
M E X I C O LatAmOil

Extra barrels on the way
Under normal conditions, such low oil prices would spur a recovery in fuel consumption, in turn triggering a rebound in prices. But with quarantine lockdowns coming into force across Europe and the US declaring a state of emer- gency, demand will be unresponsive.
Similarly, the closure of unprofitable pro- duction would also normally help rebalance the market. But Saudi Arabia has promised to increase its output by millions of bpd in less than two weeks.
Rystad estimates that up to 3mn bpd of extra oil will flood the market from April, including 2mn bpd from OPEC+ members based on their storage, spare capacity and ramp-up capabilities. They could add a further 800,000 bpd in May by utilising spare capacity to the full.
War-torn Libya, meanwhile, could contrib- ute a further 1mn bpd of supply if a ceasefire is reached and its output returns to pre-shut-in levels.
Saudi Arabia aims to increase production to 12.3mn bpd in the coming months. Its output could climb to 10.8-11.0mn bpd in April, from 9.8mn bpd, Rystad estimates, rising to 11.2mn bpd in May.
Without additional drilling, which will take longer than a few months, the kingdom’s maxi- mum production is capped at 11.5mn bpd. But it could empty its storage in order to meet its 12.3mn bpd target. Riyadh is targeting an addi- tional increase to 13mn bpd, but it is unlikely this could be achieved in 2020.
Russia, meanwhile, has said it can bring an additional 300,000 bpd on stream within 90 days, having produced 11.28mn bpd in Feb- ruary. While the country is able to achieve this, Rystad said it had assumed a more conservative growth of 200,000 bpd in its estimates.
The UAE could provide an extra 200,000 bpd in April and even more at a later stage by utilis- ing its entire spare capacity, while Kuwait could contribute 110,000 bpd and Iraq 250,000 bpd, Rystad believes.
Whether or not the supply war will go ahead is uncertain. But indications are that both Mos- cow and Riyadh are ready for a prolonged strug- gle for market share. The pair are also eager to push higher-cost shale drillers out of the market, and may not relent until they feel this goal has been achieved. On the other hand, the coronavi- rus’ ever-worsening impact on oil demand could result in them changing course. ™
BAML: Lower oil prices will cut into economic growth in Latin America
REGIONAL
BANK of America Merrill Lynch (BAML) has scaled back its forecast for economic growth in Latin America in light of the recent drop in crude oil prices.
As recently as late February, BAML’s analysts had been saying that they expected the region’s economy to grow by 1.2% in 2020. Last week, though, they cut the figure back to 0.7% and said that growth rates might go as low as 0.2% in the worst-case scenario.
They explained this decision by pointing to the coronavirus outbreak, saying that the pan- demic had highlighted Latin America’s vulner- ability to the slowdown in Chinese economic activity. They also stressed, though, that crude oil prices were a significant factor.
“LatAm is very exposed to China and com- modity prices,” the analysts wrote in the note, which was cited by Reuters.
They added: “On the back of the [coronavi- rus] outbreak and oil war, we now expect LatAm to grow 0.7% in 2020, down from 1.2%. Chile, Peru and Brazil are the most sensitive countries to the combined China and commodity shock.”
Brazil, which has the largest economy in the region, is likely to see growth of 1.5% this year instead of 1.7%, as previously forecast, BAML’s
note said. It also predicted that Mexico, Latin America’s second-largest economy, would see a contraction of 0.1% instead of 0.5% growth. Colombia will grow by 2.7% instead of 3.1%, Peru by 2% instead of 2.7% and Chile by 0.8% instead of 0.9%, it added.
Oil production accounts for a significant share of government revenues in Mexico, Colombia, Venezuela, Ecuador, Brazil and Argentina. (Venezuela, Ecuador and Colombia are particularly dependent on oil export reve- nues.) Peru and Trinidad and Tobago have also been extracting crude oil for decades, though at lower rates. Guyana became South America’s newest petroleum producer last December. ™
Week 11 19•March•2020 w w w . N E W S B A S E . c o m
P7