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OPEC chief optimistic about an end to crisis
OPEC is cautiously optimistic that the worst of the oil crisis triggered by the coronavirus pandemic is over, according to the group’s top official.
oPeC
WhAt:
Member countries of OPEC + have responded to the oil price fall with alacrity.
Why:
Prices have fallen so low as to threaten the entire oil market.
WhAt next:
OPEC+ will look at future options when it meets
in June.
ThE outlook for the market in the second half of the year is starting to look more encouraging as the global economy recovers, said Mohammad Barkindo, secretary-general of the Organisation of Petroleum Exporting Countries (OPEC). The cartel and its allies are rapidly implementing their production cuts, he said.
“here at OPEC we remain cautiously opti- mistic that the worst is behind us,” Barkindo said in a Bloomberg television interview from Vienna on Friday. “What we saw in April was extraordinary,” but the group’s members “rose to the challenge.”
oPeC’s speedy response
The cause of this optimism is that in the face of an unprecedented oil market collapse, OPEC+ has responded with an urgency never seen before. With unusual speed, the alliance is launching an unparalleled programme of pro- duction cutbacks this month to offset the slump induced by coronavirus (COVID-19).
The 23-nation coalition is well on its way to cutting 9.7mn barrels of daily crude out- put - roughly 10% of global supplies - in the first two weeks of the agreement, according to tanker-tracking data, interviews with physical crude traders and refiners, and assessments by consultants.
“The actual production cuts are deeper and more spectacular than any reasonable person would have thought a week ago,” said Ed Morse, head of commodities research at Citigroup.
Despite scepticism over the efficacy of the measures unveiled in mid-April by Saudi Ara- bia, Russia and their partners, compared to the immense hit to demand, the impact has been substantial. Oil prices have recovered by 60% in the past three weeks, as a pick-up in fuel use is complementing the supply cuts.
Little option
Much of the prodigious effort undertaken by OPEC and its allies has been unavoidable.
With a dearth of buyers and storage, they have had little choice but to slash production. Saudi Arabia has been forced to reverse the massive output increases made in April, when Riyadh was waging a vicious battle for market
share with fellow OPEC members. The kingdom has come under immense political pressure from allies in Washington to shield the US oil industry.
Yet at the heart of the swift response is a recognition of the scale of the oversupply, and the threat posed to economies dependent on crumbling oil revenues. “Partly it’s because they couldn’t sell the oil anyway,” said Morse. “But this is a moment when they really do recognise their mutual interdependence and commonly shared vulnerability.”
OPEC+ will look at all options when it meets again in June, Barkindo said. The 9.7mn bpd of production cuts that started on May 1 are due to taper gradually after two months. It is pre- mature to say whether the group could decide to change this plan, he added, saying that the cartel will consider the state of the global econ- omy, the strength of the recovery in oil demand and the status of the coronavirus pandemic in its discussions. “The outlook for the second half of the year is beginning to look encouraging and positive that there will be a rebound,” he said.
The group members have been rapidly imple- menting their cuts, the secretary-general said. Combined with additional voluntary curbs for June announced by Saudi Arabia, the United Arab Emirates and Kuwait, plus reductions in other countries including the US, total global supply will drop by as much as 17.2mn bpd.
“All participating countries are rapidly ramping up their level of compliance,” OPEC’s Barkindo said in a Bloomberg television inter- view on Friday. “So far, so good.”
Saudi Arabia, having made preparatory curbs before the deal took effect, slashed exports by 2.6mn bpd - or about 28% - to 6.7mn bpd dur- ing the first two weeks of May, tanker tracking shows.
Aramco cuts allocation to Asia
Aramco will decrease shipments to some buyers in the US and Europe by as much as 70%, accord- ing to a person with knowledge of the situation. Eight of the 12 Asian refiners that had their term supplies cut said the reductions were substantial, with curtailments of 20%-30% or more. The cuts were made against volumes that the buyers had nominated for June-loading supplies. Gulf allies
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w w w . N E W S B A S E . c o m Week 20 20•May•2020