Page 14 - DMEA Week 29 2020

DMEA POLICY DMEA

point in coordinating production increases “challenging geology and reliance on enhanced
going forward.” oil recovery (EOR) hinder output increases.
Saudi Arabia, for instance, needs $70 per bar- The sultanate cut production by nearly a quar-
rel oil to fund its budget, whereas Russia needs a ter earlier this year, with most of this coming
price of only $42 per barrel to balance the books. from Petroleum Development Oman’s (PDO)
And while Saudi Arabia made a voluntary cut of large Block 6 concession. Compliance should
1mn bpd in June to help prices recover, Russia not be an issue for Oman, but overcoming the
wants to avoid keeping back any more supply economic ramifications of lower oil prices and
than it has to. It has plans to drill but not com- returning to full output will be much more
plete thousands of wells, allowing Russian pro- challenging.”
ducers to quickly ramp up supply as OPEC+ Global oil demand is expected to be 7.9mn
restrictions are eased and claw back market share bpd lower this year than last, according to the
from competitors. International Energy Agency (IEA)’s latest
In a note on July 20, consultancy IGM Energy monthly report. It will rise by 5.3mn bpd in 2021
said: “Bouncing back from the output cuts is and exceed the 2019 level in 2022. This forecast
likely to be swift for Middle Eastern producers. follows a 16.4mn bpd year-on-year decline in oil
Saudi Arabia made changes to rig schedules, consumption in the second quarter, because of
with the Berri and Marjan crude increment pro- COVID-19 lockdown measures.
jects slowed and units mobilised elsewhere. In The world’s oil production came to 86.86mn
the UAE, Abu Dhabi National Oil Co. (ADNOC) bpd in June, a nine-year low and down 2.39mn
shut down Bab for maintenance for nearly the bpd versus the level in May. This decline was
entire month of July. Meanwhile, Iraq will have mainly on the back of OPEC+ cutbacks. Full-
less flexibility to increase output until October, year output is forecast by the IEA to be 7.1mn
having agreed to compensatory production cuts bpd lower in 2020 than in 2019.
for July, August and September, following its his- “While the oil market has undoubtedly
toric non-compliance.” made progress since ‘Black April’, the large,
Meanwhile, the Omani Ministry of Oil said and in some countries, accelerating number of
that Muscat would show its “100% commitment COVID-19 cases is a disturbing reminder that
to the OPEC+ alliance by cutting 161,000 bpd, as the pandemic is not under control and the risk
of September 2020, from Oman’s quota.” to our market outlook is almost certainly to the
Of Oman, the IGM Energy note added that downside,” the IEA said. ™

Iraq cuts exports to Asia and Europe

IRAQ IRAQ’S State Oil Marketing Organization 650,000 bpd above its OPEC+ quota, and fol-
(SOMO) will reduce the country’s exports to lowing a stern telling off by the cartel during a
Iraq is understood to refineries in Asia and Europe as Baghdad seeks recent meeting, Baghdad is expected to make up
have cut oil supplies to comply with its commitment to the OPEC+ for past non-compliance going forward.
to several Asian and deal. Last week, Baghdad agreed to make compen-
European refiners by SOMO officials were quoted by Bloomberg satory cuts as it sought to redress its previous lack
40-80% in July. last week as saying that at least two buyers had of compliance with the OPEC+ deal. This will
been told they would not receive any Basrah see an additional reduction of 70,000 bpd in July,
crude grades in August, but that the marketer another 314,000 bpd in August and 313,000 bpd
would seek to accommodate them in September. in September.
Meanwhile, reduced volumes will be sent to IOCs operating the country’s bountiful
four Asian refiners, while three European refin- southern oilfields have once again been asked
eries will face a shortfall. to reduce production, and Middle East Oil
According to Bloomberg, Iraq cut the term & Gas (MEOG) understands that they are
oil supplies to several Asian and European buy- to be compensated for the inconvenience.
ers by 40-80% for July. Following our coverage in Week 26 of the
With heavy crudes from Venezuela in par- call on IOCs and Basra Oil Co. (BOC) to
ticular out of circulation because of sanctions, cut output by 350,000 bpd and 300,000 bpd
the market has heated up for heavier Iraqi grades. respectively, MEOG understands that Lukoil
Basrah Heavy accounts for around 1.25mn bar- had previously renegotiated the terms of its
rels per day of Iraq’s total crude output, and as technical service contract (TSC) for West
production expands, this figure is expected to Qurna 2 upwards from the $1.15 per barrel
surpass 2mn bpd by 2025. originally agreed in 2010. This is understood
In May, the country was only able to imple- to have been part of talks with Baghdad to
ment 46% of its commitment to reduce output by revise downward the field’s plateau produc-
1.06mn bpd to 3.6mn bpd, with around 300,000 tion rate as it became clear that the crucial
bpd coming from ‘natural’ reductions at Halfaya Common Seawater Supply Facility (CSSF)
and Gharraf as a result of cancelled orders and would not come on stream in time to provide
limited storage. This left output at more than the required water to boost output. ™

P14 www. NEWSBASE .com Week 29 23•July•2020