Oil producers pin hopes for massive cuts on unprecedented stockpile purchases

By Dmitry Zhdannikov and Bozorgmehr Sharafedin LONDON (Reuters) - An unprecedented deal by oil producers to curb supply to match demand hollowed out by the coronavirus pandemic is set to depend partly on purchases by consumer countries for their strategic stockpiles on a scale not before seen. The Organization of the Petroleum Exporting Countries, along with Russia and other producing countries - a grouping known as OPEC+ - partnered with other oil-pumping powerhouses like the United States for an agreement set to remove a total of around 19.5 million barrels per day (bpd) from the market. Officials and sources from OPEC+ states indicated the International Energy Agency (IEA), the energy watchdog for the world's most industrialised nations, may announce purchases of up to several million barrels to buoy the deal.

Reuters April 15, 2020 00:08:27 IST
Oil producers pin hopes for massive cuts on unprecedented stockpile purchases

Oil producers pin hopes for massive cuts on unprecedented stockpile purchases

By Dmitry Zhdannikov and Bozorgmehr Sharafedin

LONDON (Reuters) - An unprecedented deal by oil producers to curb supply to match demand hollowed out by the coronavirus pandemic is set to depend partly on purchases by consumer countries for their strategic stockpiles on a scale not before seen.

The Organization of the Petroleum Exporting Countries, along with Russia and other producing countries - a grouping known as OPEC+ - partnered with other oil-pumping powerhouses like the United States for an agreement set to remove a total of around 19.5 million barrels per day (bpd) from the market.

Officials and sources from OPEC+ states indicated the International Energy Agency (IEA), the energy watchdog for the world's most industrialised nations, may announce purchases of up to several million barrels to buoy the deal.

The IEA requires its 30 member countries to hold strategic petroleum reserves (SPRs), that includes crude and products, equivalent to at least 90 days of net oil imports. However, it has never before performed a coordinated stocks purchase and has no effective mandate to do so, said two industry sources familiar with the process.

"It's completely down to individual countries," one of the sources said.

The IEA has in the past announced coordinated stocks releases, like during U.S. Hurricane Katrina and the war in Libya. But never purchases.

The IEA said it would publish its monthly report on Wednesday in which it would provide an update on the latest market developments.

"When (U.S. Secretary of State) Henry Kissinger worked to established the IEA, after the 1973 oil price shock, the goal was to help member states have a secure source of supply," said Ann-Louise Hittle from Wood Mackenzie consultancy.

"There isn’t a mandate that member nations must buy more for their storage when they are already at the required 90 days worth of oil demand," she said adding that OPEC+ production cut will have a more significant impact.

Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman said on Monday that oil purchases into SPRs would reach 200 million barrels over the next couple of months, citing the IEA, while three OPEC+ sources said stocks purchases by IEA countries would reach around 3 million bpd in the next couple of months.

The United States - the world's biggest oil producer but an even bigger consumer - along with Japan and South Korea have said they could buy oil to replenish reserves.

The U.S. Energy Department said on Tuesday it is negotiating with nine energy companies to store about 23 million barrels of domestically produced oil in its SPR.

Still, such purchases would seem far short of what some producer countries appear to hope for.

ACTIVELY BUYING

India, associated with the IEA, said it would fill its SPR by the third week of May by moving about 19 million barrels into the sites.

China, also an IEA associate, has made no public comment, although traders have said Beijing has been actively buying oil into strategic stocks in March and April.

Some market watchers believe the purchase estimates floated by OPEC+ officials are ambitious but not strictly impossible.

"The U.S. currently has 78.5 million barrels of spare capacity left in its SPR", Rystad senior oil market analyst Paola Rodriguez-Masiu told Reuters.

"South Korea has some 35 million barrels and Japan about 50 million barrels left, but this is including commercial storage. So, the 200 million barrels figure is feasible, but it will imply that everyone fills tanks to the brim.”

Still, UBS commodities analyst Giovanni Staunovo saw little incentive for developed countries to stock up beyond long-standing agreed levels, noting coordinated stocks purchases would require additional funds at a time of far larger economic problems.

"I am sceptical they will decide to increase those (emergency oil) stocks unless it makes sense from a financial perspective," Staunovo added.

(Reporting by Dmitry Zhdannikov and Bozorgmehr Sharafedin; Writing by Noah Browning; Editing by David Holmes and Marguerita Choy)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.