Reuters report on what analysts & some in the industry are expecting
- Larger producers are re-opening the taps in low-cost plays in Texas, but also in expensive shale basins in North Dakota and Oklahoma.
- “With prices where they are now, if they stay above $30, I wouldn’t expect any significant curtailments from us in Q3 or beyond,” Devon Energy Corp Chief Executive David Hager said at a J.P. Morgan energy conference on Tuesday.
This would be a rapid (albeit partial) bounce back from prior supply cuts in shale. It’ll add pressure back onto OPEC+ who recently agreed to extend their their output cuts. Supply coming back on line as prices rise … pretty textbook economics this.
Crude starts the week higher
WTI crude rose as high as $39.90 shortly after the open. It’s since ticked a few cents lower to $39.83, which is up 25-cents on the day.
OPEC+ announced a one-month cut extension on the weekend but it wasn’t all good news as some Libyan production came back online.
Keep a close eye on the $40 with crude in the March gap. The bottom end of it is $41.05.
GS say the OPEC+ G20 production cut is too little too late, and the bank sees downside risk to its $20/barrel price forecast
- “Today’s agreement leaves the voluntary cuts as still too little and too late to avoid breaching storage capacity, ensuring that low oil prices force all producers to contribute to the market rebalancing”
- no voluntary cuts could be large enough to offset the 19m b/d average April-May demand loss due to the coronavirus
- OPEC+ voluntary cut is an only actual 4.3m b/d reduction in production from 1Q 2020 levels
Oil traded higher initially upon market reopen for the week, gave it all back and turned negative and is now not much changed from late last week levels.
OPEC+ and the G20 have agreed to cut oil production by just under 10 million barrels / day.
Oil trading begins for the week at 2200GMT with Sunday evening trade on CME,
ICYMI … :
- a cut of circa 9.7 million barrels a day of oil across OPEC+ and the G20
- 13-nation OPEC and others (Russia, US are two) agreed to share cuts
Its unclear how the cuts are to be apportioned, and how the US intends to enforce its promised cuts, but indications are (its is very unclear, but these from sources, awaiting confirmation):
- Mexico cut 100,000 barrels a day
- US by 300,000 barrels / day
- Saudi Arabia’s production to be reduced to 8.5m bpd (from the current whopping 12 million bpd)
When oil trade reopens for the week we’ll see how successful the agreement is, so far, at limiting further price falls for oil.
The important factors that the supply cut does not, is not able, to address is of course is the demand side of the equation. Demand is lower due to:
- social distancing lock downs of economies
- the further, recessionary economic impact of these measures (the impacts will linger)
Back to the supply side to finish up, there is a huge overhang of oil in storage.
OPEC meet 5 and 6 March in Vienna, the Financial Times says Saudi Arabia is asking producers including Russia for a production cut of an additional 1m barrels a day
FT citing five people familiar with the talks,
Under the proposal, Saudi Arabia would account for the bulk of the new 1m b/d cut
- Kuwait, the United Arab Emirates and Russia would split the rest
- Deal not yet been agreed
- Moscow still hesitant
This proposal is up from the 600k bpd proposal previously floated.
So much for that hope
OPEC+ is close to dropping the idea of an emergency meeting this month and will stick with March meeting dates, according to delegates cited by Bloomberg. They say the Saudis may still push for hte Feb meeting.
Oil has climbed this week for the first time since Jan 3…at least for now. The March contract just expired.
IEA estimates Q1 oil demand to fall by 435k bpd year-on-year
- Q2 pglobal oil demand set to grow by 1.2 mil bpd
- Assuming that economic activity returns progressively to normal
- Cuts 2020 oil demand growth forecast by 365k bpd to 825k bpd
The changes to the forecasts and estimates are due to the coronavirus outbreak impact as IEA sees the widespread shutdown of the Chinese economy weighing heavily on demand – more so than OPEC – but they estimate a quicker recovery in the coming quarters.
That said, the agency says that the impact of the coronavirus outbreak will be felt by the oil market throughout the year and it is “hard to be precise about the impact” now.
Back to the headline reading, IEA had previously forecast a growth of 800k bpd in Q1 compared to a year earlier but now expect a contraction of 435k bpd instead – the first contraction since the global financial crisis back in 2009.
Reuters reports, citing two unnamed OPEC sources on the matter
The sources say that most OPEC members agree on the need to cut oil output further and that they are considering to have a meeting on 14-15 February now. Just one to keep in mind as such a move may provide some relief to oil prices in the near-term.
That said, once again it will be an issue on compliance to see how effective these cuts are. Oil is getting a bit of a pop on the headlines, with WTI crude now up 0.4% to $51.80.