Page 8 - MEOG Week 14

MEOG FInanCe & InVestment MEOG
IEA expresses doubts about oil recovery
market
AhEAD of the expected meeting of OPEC+ on Thursday, there have been optimistic words and signs which have given the oil price a recent boost.
The situation, however, remains very vol- atile, and even if the OPEC+ group and other major oil producers in the world were to agree to deep production cuts, they would be unable to prevent what is sure to be an enormous global inventory build-up this quarter owing to unprec- edented demand destruction, Fatih Birol, Execu- tive Director of the International Energy Agency (IEA), told reuters on Friday.
The measures that many countries have taken to try to flatten the curve of the corona- virus (COVID-19) pandemic are destroying unprecedented volumes of oil demand as more than 3bn people — from India to Europe to the United States — remain in lockdown.
As a result of restricted commuter travel, grounded flights and economic slowdown, demand for oil in April is predicted to drop by 20mn barrels per day year on year, and probably more.
Even if OPEC+ plus other producers were to discuss, agree to and implement a collective cut of 10mn bpd, global oil inventories would still rise by 15mn bpd in the second quarter, the IEA’s
chief told reuters.
Earlier this week, the IEA said that the world
had seen some oil shocks before, but “none has hit the industry with quite the ferocity we are witnessing today.”
The reason the shock is unique this time around, the IAE says, is because one of the usual stabilisation factors, the consumer, is unable to play its part. As billions of people around the world are still in lockdown, consumers are unable to react to falling prices like they usually do — by consuming more. So for as long as the pandemic lasts, boosts in demand that were seen during other oil shocks are “highly unlikely.”
Meanwhile, producers from the OPEC+ group and elsewhere are expected to discuss potential ways to react to the massive demand loss and the low oil prices that hit their lowest level in 18 years earlier this week.
While US President Donald Trump touted a cut of 10mn bpd, and possibly 15mn bpd, many oil analysts, cited by reuters, remain highly scep- tical that an agreement of these proportions can be reached and implemented.
The situation remains highly volatile, in that predictions can be out of date as soon as they are made, but the IEA’s concerns are difficult to ignore.™
PoLICy
Oil prices slip on delay to OPEC+ talks
PrICes
OIL prices were down when markets opened on April 6, following reports over the weekend that a meeting between OPEC+ and other producers due to take place that day had been delayed.
The emergency meeting, via video confer- ence, is now likely to go ahead on either April 8 or 9, to allow more time for talks, OPEC sources told reuters on April 4. Sources told CnBC that the meeting was expected to take place on April 9. Brent futures fell to close to $30 per barrel in early trade, but had rebounded to $33.90 by 06:15 GMT, down 0.7% from the close of trade on April 3. West Texas Intermediate (WTI) sank 5.9% when markets opened, landing at $26.68 per barrel. But it later recovered to $27.90.
US President Donald Trump indicated on April 2 that Saudi Arabia and russia were close to reaching a truce and averting an oil supply war, at a time when markets are already reeling from the impact of coronavirus (COVID-19) lockdowns.
In early March, Saudi Arabia proposed that the OPEC+ remove an additional 1.5mn bar- rels per day (bpd) from the market, prompting russia to withdraw from the suppliers’ pact. The kingdom has responded by flooding the mar- ket, in an attempt to bring Moscow back to the negotiating table. russia has begun ramping up its output in turn.
Trump’s administration has waded into the dispute, because of the damage that low oil prices are doing to the heavily indebted US shale industry. Signalling that animosity remains, rus- sian Energy Minister Alexander novak claimed it was Saudi Arabia that had refused to extend OPEC+ supply quotas beyond their expiry on April 1.
The kingdom had also taken “other steps that negatively affected the oil market,” he said.
Saudi Oil Minister Prince Abdulaziz bin Sal- man hit back on April 4, blaming russia for the breakdown in OPEC+ talks.
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w w w . N E W S B A S E . c o m Week 14 08•April•2020