OPEC chief says oil market may have upside potential in 2020

OPEC’s production of crude oil and other liquids is expected to decline to 32.8 million barrels per day by 2024. (AFP)
Updated 06 November 2019

OPEC chief says oil market may have upside potential in 2020

  • Mohammed Barkindo appears to downplay the need to cut output more deeply

VIENNA: The oil market outlook for next year may have upside potential, the secretary-general of producer group OPEC said on Tuesday, appearing to downplay any need to cut output more deeply.

The Organization of the Petroleum Exporting Countries and its allies led by Russia will meet in December. The so-called OPEC+ alliance, seeking to boost oil prices, has since January implemented a deal to cut output by 1.2 million barrels per day until March 2020.

OPEC’s Mohammed Barkindo said he was more optimistic about the market outlook for next year than he had been in October, when he had said all options were open including a deeper cut to oil output amid forecasts of oversupply.

“Based on the preliminary numbers, 2020 looks like it will have upside potential,” he told a briefing on Tuesday. “There are definitely brighter spots. The numbers are looking more refined and the picture is looking brighter.”

“The other nonfundamental factors like trade issues that have been impacting negatively on the global economy, the news coming out is more optimistic. We have seen the biggest economy in the world, the US, continuing to defy projections, racing ahead.”

OPEC’s figures suggest there will be excess supply next year due to rising production outside the group. This prospect and issues such as the US-China trade dispute have weighed on oil prices, which at around $62.70 a barrel are down from a 2019 high above $75.

On whether the market looked oversupplied for next year, Barkindo said: “We are not there yet. We will not be able to at this point preempt all the steps that we are working through.”

Those steps, he said, include upcoming meetings of OPEC technical committees, such as its Economic Commission Board, and the next OPEC monthly oil market report, which looks at global demand and supply, due on Nov. 14.

Earlier, Barkindo also said Brazil would be welcome to join the 14-country oil producer group but had not yet made an official request to do so.

“They would be most welcome to join,” he told reporters, adding that consultations had taken place in Riyadh.

Brazilian President Jair Bolsonaro said last month that he wants his country to join OPEC, a move that would add the most significant new producer to the oil cartel for years but met with skepticism in Brazil’s energy industry.

OPEC on Tuesday released its 2019 World Oil Outlook, in which the producer group said it would supply a diminishing amount of oil in the next 5 years as output of US shale and other rival sources expanded. 


Asia jet fuel demand slumps after flights canceled over outbreak

Updated 5 min 56 sec ago

Asia jet fuel demand slumps after flights canceled over outbreak

  • Jet fuel demand could fall by 170,000 bpd in 2020

SINGAPORE: Asian jet fuel demand is taking a beating from an outbreak of a flu-like virus in China that has led airlines to cancel scores of flights during the peak lunar new year travel season.

Jet fuel prices have dropped and refiners’ profits for the product have slumped to the lowest in more than two and a half years, while industry analysts are cutting their 2020 forecasts for jet fuel and overall oil demand.

Airlines and passengers are on guard against the respiratory coronavirus that originated in the central Chinese city of Wuhan, killing more than 130 people in China so far and spreading to over a dozen countries.

“Chinese jet demand usually sees a seasonal upside of around 150,000 barrels per day (bpd) ahead of the lunar new year in January versus December, and we are likely to be looking at a lower-than-average seasonal uptick for early 2020 given the curtailments on travel,” said Kostantsa Rangelova, lead Asia analyst at Vienna-based consultancy JBC Energy.

Many passengers have called off travel plans for the lunar new year holiday, prompting airlines to offer refunds.

“Market participants, already wary of slow demand growth from last year, are weighing the effects on global oil demand of the lockdown in several cities in China, and likely reduced traveling in the broader Asia-Pacific region,” Barclays analyst Amarpreet Singh said in a note.

During the 2002-2003 outbreak of severe acute respiratory syndrome (SARS) — also caused by a coronavirus that originated in China and which killed nearly 800 people globally — air passenger demand in Asia plunged 45 percent. And now, the travel industry is more reliant on Chinese travelers, and China’s share of the global economy has quadrupled.

“This year, the impact on jet fuel could be more severe, as China’s share of global jet demand has risen from 3.8 percent in 2003 to 12 percent in 2017,” Citi analysts led by Ed Morse said in a note.

If air passenger traffic in China were to decline by half in the first quarter of this year, it would likely lead to a 300,000 barrels-per-day (bpd) decline in jet kerosene demand from China from a year ago, Barclays analyst Singh said.

Several airlines across Asia have suspended flights to Wuhan, and some tour operators are canceling trips to China.

“Flight departures from the top five biggest Chinese airports fell by nearly 800 flights this past weekend relative to (the previous) weekend, while traffic in the five airports closest to Wuhan have fallen by nearly 50 percent over recent days,” analysts at RBC Capital Markets said in a note.

Jet fuel demand over the past five years has been a bright spot for global oil demand growth, accounting for some 15 percent of Chinese demand growth, the analysts said.

Refiners’ profits for producing a barrel of jet fuel from Dubai crude fell to $9.25 a barrel on Monday, the lowest level since June 2017 and down nearly 40 percent since the start of this year, Refinitiv Eikon data showed.