Barclays cuts 2020 crude forecasts by $12 on virus and OPEC+ deal collapse

Oil prices fell more then 20 percent after the breakdown of the OPEC+ agreement. (AFP)
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Updated 25 March 2020

Barclays cuts 2020 crude forecasts by $12 on virus and OPEC+ deal collapse

  • Oil prices rose on Tuesday on hopes that the United States will reach a deal soon on a $2 trillion virus aid package which could blunt the economic impact of the outbreak and in turn support oil demand

LONDON: Barclays on Tuesday slashed its oil price forecasts for 2020, citing considerable downward pressure on the market from the Saudi-Russian price war and demand disruption because of the coronavirus.
The bank lowered its 2020 price outlook for Brent and West Texas Intermediate by $12 each to $31 and $28 per barrel respectively.
“Prices are likely to remain under pressure until the virus situation turns the corner, and if we continue on the projected market balances path, even Saudi Arabia and Russia will not be immune from the price fallout,” analysts at the bank wrote in a note.
It joined several other banks in slashing their oil price forecasts on account of the collapse of an output curb deal among members of the Organization of the Petroleum Exporting Countries and allies, or OPEC+, as well as the demand hit from the virus.
Barclays also forecast global available onshore storage capacity at about 1.5 billion barrels with an estimated oversupply of over 5 million barrels per day (bpd) for this year and an oversupply of 10 million bpd on average for second quarter.

Meanwhile, “strategic petroleum reserve (SPR) purchases by the US government are unlikely to alleviate US producers’ pain,” the bank said.
The available SPR storage is less than 80 million barrels, according to Department of Energy data, and would amount to a flow of less than 0.5 million bpd when filled over a period of six months, compared with almost 10 million barrels of projected oversupply over the second quarter, it added.
Oil prices rose on Tuesday on hopes that the United States will reach a deal soon on a $2 trillion virus aid package which could blunt the economic impact of the outbreak and in turn support oil demand.
Prices slumped over 20 percent after the breakdown of the OPEC+ agreement threatened to flood the market with oil.


Make or break days for global oil ahead of OPEC crunch meeting

Updated 38 min 17 sec ago

Make or break days for global oil ahead of OPEC crunch meeting

  • OPEC, led by Saudi Arabia, were on Thursday scheduled to take part in virtual discussions with non-OPEC members, led by Russia, about a possible deal to revive the OPEC+ alliance
  • On Friday, energy ministers from the G20 nations, under the presidency of Saudi Arabia, will convene in another digital forum that will bring in the third part of the global oil equation – the US

DUBAI: The global energy world, in the midst of crisis as demand slumps to unprecedented levels due to the coronavirus disease (COVID-19) pandemic, faces two days that could make – or break – the oil industry for months to come.
Leading producers from the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, were on Thursday scheduled to take part in virtual discussions with non-OPEC members, led by Russia, about a possible deal to revive the OPEC+ alliance that fell apart in Vienna at the beginning of last month.
Then, on Friday, energy ministers from the G20 nations, under the presidency of Saudi Arabia, will convene in another digital forum that will bring in the third important part of the global oil equation – the US, currently the biggest oil producer in the world.
If no deal is reached from the two days of oil summits, the immediate prospect looms of a further fall in crude prices and, with global storage facilities already filling rapidly, the possibility of major exporters “shutting in” oil fields, jeopardizing future production.
Energy experts say the purpose of the meetings is two-fold: To reach agreement on how to limit the vast quantities of oil that are still being produced even as demand collapses; and to present some kind of united front in geopolitical terms in the face of the biggest economic recession since the 1930s.
The most visible immediate sign of any success from the meetings will be an increase in the price of crude oil on global markets. Brent crude, the Middle East benchmark, has lost nearly half its value in the past month.
The first aim – to try to balance oil supply and demand – is the more difficult. Global demand has fallen by at least 20 per cent from the usual daily consumption of around 100 million barrels, oil economists have calculated.
But, following the collapse of the OPEC+ deal that was putting a lid on supply, all producers have been pumping more crude. Saudi Arabia is producing more than 12 million barrels per day (bpd), a bigger volume than at any time in its history. All OPEC members, as well as Russia, have said they will increase output.
In this stand-off, US President Donald Trump intervened last week to say that he had spoken to Saudi and Russian leaders and that he “expected” a cut of 10 million, possibly even 15 million, bpd.
That looks like wishful thinking. For one thing, it would not rebalance markets. Anas Al-Hajji, managing partner of US-based Energy Outlook Advisers, said: “The amount of the cut is relatively small given the major drop in demand.”
There are also some difficult relationships to smooth over in the OPEC+ alliance. Saudi Arabia and Russia exchanged angry statements last weekend, each accusing the other of starting the oil price war. Iran, with big reserves but hampered by US sanctions from exporting in large quantities, said that it might not take part in the conference.
The choreography of the two meetings also presents hurdles. The US will not be present at the OPEC+ meeting, but American Secretary of Energy Dan Brouillette said he would take part in the G20 event.
Because it is a free-market industry, America cannot order its oil producers to reduce output, but most analysts are agreed any attempt to rebalance global supply would be impossible without a US contribution.
By going first, Saudi Arabia and Russia are “playing blind” without knowing what the Americans are thinking. Neither would want to agree big price-restoring cuts only for US producers – under big financial pressure at current levels – to swoop back into the market.
This week there have been some signs that the Americans are considering their own versions of cutbacks. The biggest US company, Exxon Mobil, said it would reduce capital expenditure on future projects by 30 percent; the US Energy Information Administration said oil production would fall by nearly 1 million bpd this year, in response to falling demand and financial pressures.
But even if the Saudis and Russians cut substantially alongside other big OPEC producers such as the UAE, and the Americans enter a long-term pattern of falling demand, it is still hard to see how cuts could reach the 10 million barrels Trump “expects,” let alone 15 million.
J. P. Morgan, the big US investment bank, said that it expects OPEC+ to come up with combined cuts of about 4.3 million barrels, most of that coming from Saudi Arabia, Russia and the UAE. “If it’s 4.3 million it only puts off the day when global storage gets filled completely,” said Robin Mills, CEO of Qamar Energy consultancy.
Storage facilities are nearly at the brim. Malek Azizeh, director of the premium facilities at the Fujairah Oil Terminal in the UAE, joked that he was going to hang a sign on the terminal gates: “Thanks, but no tanks.”