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

  • 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.


Demand issues ‘to overshadow OPEC+ supply next year’

Updated 29 October 2020

Demand issues ‘to overshadow OPEC+ supply next year’

  • Libya's rising production adding to pressure on oil markets

DUBAI: The Organization of the Petroleum Exporting Countries (OPEC) and its allies will have to contend with a “lot of demand issues” before raising supply in January 2021, given throughput cuts by oil refiners, the head of Saudi Aramco’s trading arm said.
OPEC and its allies plan to raise production by 2 million barrels per day (bpd) from January after record output cuts this year as the coronavirus pandemic hammered demand, taking overall reductions to about 5.7 million bpd. 

“We see stress in refining margins and see a lot of refineries either cutting their refining capacity to 50-60% or a lot of refineries closing,” Ibrahim Al-Buainain said an interview with Gulf Intelligence released on Wednesday.

“I don’t think the (refining) business is sustainable at these rates (refining margins).”

However, Chinese oil demand is likely to remain solid through the fourth quarter and into 2021 as its economy grows while the rest of the world is in negative territory, he added.

Among the uncertainties facing the oil market are rising Libyan output on the supply side and a second wave of global COVID-19 infections, especially in Europe, on the demand side, Al-Buainain said.

Complicating efforts by other OPEC members and allies to curb output, Libyan production is expected to rebound to 1 million bpd in the coming weeks.

Oil prices, meanwhile, fell over 4 percent on Wednesday as surging coronavirus infections in the US and Europe are leading to renewed lockdowns, fanning fears that the unsteady economic recovery will deteriorate.

“Crude oil is under pressure from the increase in COVID-19 cases, especially in Europe,” said Robert Yawger, director of energy futures at Mizuho in New York.

Brent futures fell $1.91, or 4.6 percent, to $39.29 a barrel, while US West Texas Intermediate crude fell $2.05, or 5.2 percent, to $37.52.

Earlier in the day Brent traded to its lowest since Oct. 2 and WTI its lowest since Oct. 5.

Futures pared losses somewhat after the US Energy Information Administration (EIA) said a bigger-than-expected 4.3 million barrels of crude oil was put into storage last week, but slightly less than industry data late Tuesday which showed a 4.6 million-barrel build.

However, crude production surged to its highest since July at 11.1 million barrels per day in a record weekly build of 1.2 million bpd, the data showed.

Gasoline demand has also been weak overall, down 10 percent from the four-week average a year ago. US consumption is recovering slowly, especially as millions of people restrict leisure travel with cases surging nationwide.