Page 5 - FSUOGM Week 11

FSUOGM COMMENTARY FSUOGM
Meanwhile, road fuel demand is slated to decrease by 2.2%, or 1.1mn bpd.
The coronavirus crisis and Russia’s sudden exit from OPEC+ are black swan events that have forced producers across the world to slash spending significantly and delay projects. As recently as February, analysts polled by Bloomb- erg, Reuters and others were predicting an aver- age price for Brent of around $60 per barrel for 2020. If oil remains at the current level for months, operators will have to go a step further and shut down existing production that is no longer profitable.
US shale drillers in particular took a serious hit from the price collapse, and warnings have been sounded over a wave of bankruptcies that could be looming.
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 could meanwhile contribute a further 1mn bpd of supply if a ceasefire is reached and its out- put 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 maximum 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 has meanwhile said it can bring an additional 300,000 bpd on stream within 90 days, having produced 11.28mn bpd in Febru- ary. 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. ™
Week 11 19•March•2020 w w w . N E W S B A S E . c o m
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