Page 5 - MEOG Week 20

MEOG CommentAry MEOG
Kuwait, the United Arab Emirates and Oman have taken similar steps.
While it is typical for the Gulf bloc to be fully compliant, they have surpassed those standards this time by volunteering to make even deeper cuts before the first month of the latest agree- ment has elapsed. An additional Saudi reduction of 1mn bpd in June will cut its output to its lowest since 2002.
Market sentiment regarding the tightening of Aramco’s crude supplies propped up Asia’s spot market for Middle East sour crude on Thursday as some sellers doubled or even quadrupled their offers from the last trade levels.
Several buyers were looking for Middle East crude cargoes, but sellers were either holding out or offering their cargoes at high premiums, trade sources said. Last month, the market had been flooded with cheap oil at deep discounts.
On Thursday, ExxonMobil hiked its offer price for Abu Dhabi’s medium sour grade of crude, Upper Zakum, for July loading, to a spot premium $1.40 a barrel to the grade’ s official selling price (OSP), traders said. This was up from a premium of 30 cents a barrel to the OSP, when Exxon sold a cargo to a Chinese buyer on Tuesday, they added.
Profits at Saudi Arabia’s state oil giant tum- bled 25% to $16.7bn in the first quarter as oil prices fell as a result of the pandemic and the price war launched by the kingdom.
Saudi Aramco shrugged off the weaker than expected results to declare a dividend of $18.75bn, the highest of any company globally, keeping it on track for a promised annual payout of $75bn.
Meanwhile, oil surged to its highest in more than five weeks as signs emerge that OPEC and its allies are scaling back crude shipments at a time when consumption is recovering.
Futures in New York gained 9% Thursday. OPEC+ reduced exports by 5.96mn bpd for the first 14 days of May, according to Petro-Logistics. The International Energy Agency (IEA) said the outlook for global markets is improving, with demand a little stronger than expected, while oil major BP said consumption had surged back this week as cars returned to the roads.
The drop in exports is showing “they are complying with the OPEC+ deal,” said Andrew Lebow, senior partner at Commodity Research Group. The action taken contributed to a “more constructive scenario for the market.”
What has surprised physical crude traders even more is the commitment shown by Russia. In previous agreements, Moscow has secured the right to incrementally phase in its allocated
cutbacks, arguing that its more challenging geo- logical conditions require a gradual approach. The result has been that it has rarely met its com- pliance target.
This time round, data from the Energy Min- istry’s CDU-TEK unit shows crude output may already be down to 8.75mn bpd - within striking distance of the 8.5mn barrel target.
“We’re starting to see some discipline come into the producing countries’ programmes,” Clay Seigle, managing director at Vortexa, said in an interview from houston. “The headline figures from the first 10 days of the month do look like they’re starting to crack down.”
Usual suspects
There are exceptions to the general good behav- iour, though.
Iraq, which regularly flouts its pledges to OPEC+, has trimmed exports only marginally, tanker-tracking data shows. Shipments are down only 190,000 bpd this month, while the accord calls for the country to cut production by just over 1mn bpd.
Although Baghdad has decided how to allo- cate the 1mn barrel reduction with international oil companies (IOCs) such as BP and ExxonMo- bil, operators are still awaiting a letter detailing their share of the burden, according to people familiar with the matter.
Yet even OPEC’s most recalcitrant member is showing signs it may reform. Both OPEC’s Barkindo and Saudi Energy Minister Abdu- laziz bin Salman have recently conferred with Baghdad about compliance, which Baghdad has promised to improve, Barkindo said on Friday.
Iraq’s state oil-marketing department has reduced contractual supplies of Basrah crude due to be shipped to at least three customers in June, according to traders who received the notification.
Kazakhstan, which like Iraq has disregarded limits agreed with OPEC+ in the past, is also dragging its feet. Tengizchevroil, the venture led by Chevron that pumps a third of the nation’s oil, was still reviewing the government’s instruction to cut back as of May 11.
Despite the laggards, the visible drop in exports and public assurances of adherence have convinced traders that OPEC+ is more serious than ever. Discussion in the market has flipped from whether the supply cuts are enough, to how long they can be maintained. “It’s more than enough to balance the market,” said Morse. But “as prices rebound and they see inventories are drawing, they’ll be tempted to bring production all the way back.”™
Week 20 20•May•2020 w w w . N E W S B A S E . c o m P5