Whether OPEC+ formally agrees, deeper oil cuts now look inevitable

By Alex Lawler and Ahmad Ghaddar LONDON (Reuters) - Whether or not OPEC+ oil producers formally agree to extra oil output curbs, rapidly filling storage capacity and plummeting demand due to the coronavirus crisis may force them to cut more. With crude consumption collapsing, the Organization of the Petroleum Exporting Countries, Russia and other producers, a group known as OPEC+, is due to implement a deal to cut supply by a record 9.7 million barrels per day (bpd) from May 1. But that unprecedented deal to withdraw about 10% of global supply already looks inadequate when demand has plunged by as much as 30% and the world is possibly just weeks away from running out of storage space for the surplus

Reuters April 23, 2020 00:07:09 IST
Whether OPEC+ formally agrees, deeper oil cuts now look inevitable

Whether OPEC formally agrees deeper oil cuts now look inevitable

By Alex Lawler and Ahmad Ghaddar

LONDON (Reuters) - Whether or not OPEC+ oil producers formally agree to extra oil output curbs, rapidly filling storage capacity and plummeting demand due to the coronavirus crisis may force them to cut more.

With crude consumption collapsing, the Organization of the Petroleum Exporting Countries, Russia and other producers, a group known as OPEC+, is due to implement a deal to cut supply by a record 9.7 million barrels per day (bpd) from May 1.

But that unprecedented deal to withdraw about 10% of global supply already looks inadequate when demand has plunged by as much as 30% and the world is possibly just weeks away from running out of storage space for the surplus.

Vopak, the world's biggest independent storage company, said on Tuesday its tanks were almost full.

Tanks at Cushing, the delivery point for the U.S. crude futures contract, might not yet be full but any available space was already booked, analysts and traders said.

"We have to cut down, ... with or without OPEC output cut deal," Mele Kyari, the head of Nigeria's state-owned oil firm NNPC Group, told the African nation's Premium Times newspaper.

He said Nigeria would have to cut production because it was hard to find anywhere to put the oil.

An OPEC source told Reuters it was "logical" to expect the market to force more cuts on OPEC+ producers.

As much as 17 million bpd of supply could be taken out of the market this spring, estimated Jim Burkhard at IHS Markit, a research firm, due to production cuts and other shutdowns.

However, Woodmac expects supplies to drop more slowly, saying compliance with the OPEC+ cuts would not be immediate. The consultancy forecast oil output in May and June would decline by 6.71 million bpd, of which 4.5 million bpd would come from OPEC+.

Energy Aspects expects imminent shut-ins in the United States to amount to at least 1.3 million bpd, in addition to cutbacks already announced by the United States this month when OPEC+ was working on its deal.

'UNCHARTED TERRITORY'

"The deep contango will now compel oil producers to reduce output immediately, financially and logistically," Energy Aspects wrote, referring to a market structure where spot prices are lower than prices for oil delivered at a later date - which usually encourages storage unless there is no space left.

The consultancy forecast U.S. production would decline by 710,000 bpd year on year in 2020.

"We are in uncharted territory. Everything is possible, including the unbelievable," an OPEC+ source said on whether members of the group could be forced to make even deeper cuts.

Rystad Energy's analyst Christopher Page estimated about 400 million barrels of crude storage capacity remained available, much of it in the United States, while stocks were building at a rate of 26.5 million bpd in April.

If that rate holds, it could exhaust global storage capacity in a little more than two weeks.

"While the OPEC cuts will help, they are limited, and the global storage availability picture now looks grim for June," Page said.

Meanwhile, OPEC is already looking at further steps, less than two weeks since forging its last deal.

Saudi Arabia said on Tuesday it was ready to take extra measures along with OPEC+ allies and other oil producers, and Iraq echoed that position, although Russia was more cautious.

But there are already signs of producers around the world being forced to take action for economic reasons. EnQuest last month became the first British producer to shut North Sea fields in the wake of the price slump.

"Once all available storage capacity is utilised physical shut-ins will be required to balance the market," said Redburn Energy in a report. "This may have to happen rapidly."

(Additional reporting by Libby George and Dmitri Zhdannikov; Editing by Edmund Blair)

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.