Oil giants are far apart on eve of crucial output talks

Oil giants are far apart on eve of crucial output talks
The oil price, which has rebounded from lows this week after the intervention of US President Donald Trump, gave few clues to the market’s view. (Reuters)
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Updated 09 April 2020

Oil giants are far apart on eve of crucial output talks

Oil giants are far apart on eve of crucial output talks
  • Saudi Arabia, Russia believe deal can be done but ‘significant bridges’ must be crossed[

DUBAI: Big oil producers are divided over the way forward on the eve of two days of “virtual” talks aimed at rebalancing the global market.

Industry sources in Saudi Arabia and Russia told Arab News on Tuesday they were still hopeful of an agreement to cut oil output at a meeting on Thursday of OPEC and non-OPEC members, the so-called OPEC+ group.

But they said issues remained to be resolved, and a full agreement may be delayed until after Friday’s meeting of G20 energy ministers under the Saudi presidency.

The oil price, which has rebounded from lows this week after the intervention of US President Donald Trump, gave few clues to the market’s view. Trading in Brent crude, the Middle East benchmark, was quiet until a late surge of nearly 4 percent to nearly $34 a barrel.

Trump has said he “expected” cuts in oil output of up to 15 million barrels a day, but most experts believe that is impossible, even if US producers join in.

Reports from Moscow suggested Russia was considering cuts of 1.6 million barrels a day, but President Vladimir Putin’s spokesman said there were significant differences to be bridged before a deal could be done, especially with regard to US involvement.

“There are different concepts and they cannot be equated,” he said. “The natural decline in US oil production cannot be compared with reductions to stabilize oil markets.” US producers have slashed capital expenditure and oil output in the face of plunging global demand.

The Texas oil and gas regulator, Ryan Sitton, said US producers were likely to “organically” cut 4 million barrels of oil per day over the next three months, but cuts of 20 million barrels were needed from OPEC+ countries. Industry experts said this was unlikely.

“Trump has made a big mistake by blaming Saudi Arabia and Russia. He will be shocked when oil prices remain low even if we have a 10 million barrel cut,” said Anas Al-Hajji, managing partner of Texas oil consultancy Energy Outlook Advisers.  

JP Morgan, the big US bank with a long-standing relationship with Saudi Arabia, said the most it expected from the OPEC+ talks was a commitment to cut 4.3 million barrels a day.

“The Saudis want to keep pressure on oil prices in order to gain a larger market share and concessions from Washington,” the bank said.

Influential energy expert Daniel Yergin predicted cuts of 10 million barrels, including America’s “natural decline.”

“The collapse in world oil demand and low prices are driving large spending cuts among oil companies around the world. The largest cuts in percentage terms so far are coming from north America,” he said.


WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range
Updated 24 January 2021

WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

WEEKLY ENERGY RECAP: Despite long-term challenges, oil prices remain in healthy range

Oil prices have been stable since early January, with Brent crude price hovering around $55. Brent crude closed the week slightly higher at $55.41 per barrel,
while West Texas Intermediate (WTI) closed slightly lower at $52.27 per barrel.

Oil price movement since early January in a narrow range above $50 is healthy, despite pessimism over an increase in oil demand, while expectations of US President Joe Biden taking steps to revive energy demand growth are
still doubtful. The US Energy Information Administration (EIA) reported a hike in US refining utilization to its highest since March 2020, at 82.5 percent. The EIA reported a surprise weekly surge in US commercial crude stocks by 4.4
million barrels. Oil prices remained steady despite the bearish messages sent from the International Energy Agency (IEA), which believes it will take more time for oil demand to recover fully as renewed lockdowns in several countries weighed on oil demand recovery.

The IEA’s January Oil Market Report came as the most pessimistic monthly report among other market bulletins from the Organization of the Petroleum Exporting Countries (OPEC) and EIA. It forecast oil demand will bounce back to 96.6 million bpd this year, an increase of 5.5 million bpd over 2020 levels.

Though the IEA has lowered its forecast for global oil demand in 2021 due to lockdowns and vaccination challenges, it still expects a sharp rebound in oil consumption in the second half of 2021,
and the continuation of global inventory depletion.

The IEA reported global oil stocks fell by 2.58 million bpd in the fourth quarter of 2020 after preliminary data showed hefty drawdowns toward the end of the year. The IEA reported OECD industry stocks fell for a fourth consecutive month at 166.7
million barrels above the last five-year average. It forecast that global refinery throughput is expected to rebound by 4.5 million bpd in 2021, after a 7.3 million bpd drop in 2020.

The IEA monthly report has led to some short term concern about weakness in the physical crude spot market, and the IEA has acknowledged OPEC’s firm role in stabilizing the market.

Controversially, the IEA believes that a big chunk of shale oil production is profitable at current prices, and hence insinuated that shale oil might threaten OPEC market share.

It also believes that US shale oil producers have quickly responded to oil price gains, winning market share over OPEC producers. However, even if US shale oil drillers added more oil rigs for almost three months in a row, the number of operating rigs is still less than half that of a year ago, at 289 rigs.

The latest figures from the Commodity Futures Trading Commission show that crude futures “long positions” on the New York Mercantile Exchange are at 668,078 contracts, down by 18,414 contracts from the previous week (at 1,000 barrels for each contract).