Page 5 - FSUOGM Week 15

FSUOGM COMMENTARY FSUOGM
79% full, according to Rystad, meaning that only around 1.5bn barrels of capacity is still available. And not all markets have equal access to this remaining storage, which is mostly located in China and the US.
What the OPEC+ deal does is buy time, for fuel demand to recover, storage operators to overcome constraints and potentially expand their capacity, and other producers to make nec- essary cutbacks to stay afloat.
Lacklustre support
The US – concerned about the impact of low oil prices on its indebted shale oil industry – indi- cated it would help Mexico meet its quota by reducing its own output by 250,000 bpd. This may have helped break the deadlock, although Washington has not said whether it will impose cuts on US producers to achieve this, beyond those they have already made for commercial reasons.
The main risk to the OPEC+ deal is the absence of any other countries outside the group making firm pledges to cut their pro- duction. Saudi Arabia and Russia previously said they wanted non OPEC+ producers to take another 5% of global supply offline to support the industry. G20 energy ministers meeting on April 10 agreed to work together to ensure oil
price stability, but did not announce any specific commitments.
OPEC+ sources told Reuters that Brazil, Canada, Indonesia, Norway and the US would contribute a further 4-5mn b/d to the cuts. But the countries have not confirmed making any promises. In any case, these will be unchecked voluntary cuts, likely guided by commercial considerations.
“Even though OPEC+ has decided to attempt to bail out the global oil market, the group has unfortunately only come up with half of the ran- som money,” Rystad said. “We believe the mar- ket’s disappointment will reflect in prices already from April due the lack of size and the speed of the supply removal.”
Moscow and Riyadh are particularly anxious to see the US, the world’s number one producer which extracted around 12mn bpd last year, join the pact. The US Energy Department (DoE) said last week that US oil firms were expected to tem- porarily scale back production by almost 2mn bpd anyway, because of cost-cutting measures. But without legal restrictions, these same firms could simply increase flows again once prices recover.
There are some US officials calling for a legis- lative response, include Ryan Sitton, head of the Texas Railroad Commission that serves as the
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