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IEA warns that Iraq oil supply is potentially vulnerable as Middle East tensions flare

  
Analysis, Crude

IEA comments in its monthly report

Oil
  • Iraq oil supply potentially vulnerable amid rising political risks in the region
  • US-Iran tensions and Iraqi protests had only minimal impact on oil operations
  • But fragile situation may limit Iraq’s plans to expand oil production capacity
  • That may make it difficult for global industry to meet rising long-term demand
For some context, Iraq is the second largest oil producer in the Middle East and pumped 4.59 million bpd of oil in December. That said, the OPEC+ pact still requires them to cut around 130k bpd to meet the compliance quota.
However, even with Iraq and all of OPEC+ reaching full compliance, IEA forecasts that the world market still faces a surplus of about 800k bpd in 1H 2020.
That kind of landscape makes it a tough situation to see oil prices significantly higher this year and could suggest that we have already seen the highs for the year amid US-Iran tensions over the past two weeks.

Saudi energy minister says OPEC+ will only take decision on oil output cuts in March

  
Analysis, Crude

Adds that it is too early to talk about the decision at this point in time

With the oil market “normalising” after recent US-Iran geopolitical tensions, there is a sense that we may have probably seen the peak for oil prices this year already.

The market continues to be well supplied and unless global growth/demand improves significantly over the coming quarters, it is hard to see a natural progression towards anything higher than $70 just off supply and demand alone.
In that sense, OPEC+ will definitely have to keep their current quotas to maintain any form of a floor in oil prices for the rest of the year at least.

UAE energy minister: No OPEC+ emergency meeting needs to be called

  
Analysis, Crude

Comments by UAE energy minister, Suhail Al Mazrouei

OPEC
  • OPEC+ will respond if necessary to US-Iran tensions
  • World economy cannot sustain oil at $100 per barrel
  • Middle East leaders are working for calm
He also tries to ease the focus on geopolitical tensions by claiming that OPEC compliance numbers are looking better in December, pointing to better compliance by Iraq and Nigeria – two countries which haven’t really been playing ball previously.
If anything else, I think they can be a little happy with oil at around $70 but if it starts to trigger shale producers to go into overdrive, it’ll be a bad spot for oil supply in the big picture once geopolitical tensions start to die down.

EIA lowers US 2020 crude production estimate to 13.18 mbpd from 13.29 mbpd prior

  
Analysis, Crude
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EIA lowers 2020 supply outlook after OPEC

  • Sees supply for 2020 at 102.29 mbpd vs 102.58 mbpd prior
  • Demand seen at 102.14 mbpd vs 102.27 mbpd prior
  • EIA forecasts OPEC crude oil production will average 29.3 million b/d in 2020, down by 0.5 million b/d from 2019
  • Latest report
The swing producer in the world is now shale. In this report, the EIA said it expects total US crude oil and petroleum net exports to average 570,000 bpd in 2020 but that’s down from 750,000 bpd in last month’s estimate.
They continue to see a rise of 0.9 mbpd in US production this year, that’s slower than the 1.3 mbpd rise this year but still above private forecasts, which have fallen to 0.6 mbpd (and lower).

OPEC+ said to reach agreement to reduce output target by 500k bpd

  
Analysis, Crude
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OPEC+ ministers are said to have agreed to the deal

The closed session meeting is still taking place but as ever the case, the decision is already being leaked out. In any case, the 500k bpd additional cut here is what has been anticipated over the past two days.
But all this does is just bring the target level closer to actual production levels seen throughout the whole of this year. Oil stays slightly pressured with Brent near lows just above $63 and WTI likewise just above $58.
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