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OPEC members have managed to implement massive production cuts
since May, which proved to act as some support to the global oil
market during a rather tough period, as demand has been under
extreme pressure since the outbreak of COVID-19. The historic
imbalance has been kept under control. The first signals of the
market's stability became clearer since July, even if oil prices
remained relatively low. But the recovery will require more time
and still looks rather fragile. The scenario of a second wave of
cases damaging oil demand further in Q4 2020 and potentially early
2021, while China's imports of crude slow down, cannot be
ignored.
OPEC has revised down its forecast for global oil demand by
another 400,000 b/d this year. The cartel now expects consumption
to decline by 9.5 million b/d compared to last year. The average
expected for this year now stands at 90.2 million b/d. The group
highlighted the high risks skewing "to the downside, particularly
in relation to the development of COVID-19 infection cases and
potential vaccines". The last monthly report also referred to the
increasing uncertainty in Asian countries, including India. Next
year's demand outlook was lowered by 400,000 b/d as well, with
global oil demand expected to rise by 6.6 million b/d vs 2020.
OPEC and twelve non-OPEC producers (including Russia) currently
withhold around 7.7 million b/d of crude oil production, in an
effort to rebalance supply and demand. Prices have been more stable
at around USD 40 a barrel during the last couple of months. But if
the current levels are maintained for much longer, several members
are expected to face issues with their budgets. Meanwhile, securing
that all participating members continue complying with their quotas
has proved a rather challenging task.
The failure of OPEC+ to extend production cuts in late Q1 2020
which led to the oil price war and the booming production and
exports in April 2020 are still affecting the global market,
together with COVID-19. Congestion at Chinese ports remains high,
as China's appetite to absorb more crude oil has been slowing down
over the last quarter.
Oil producers have to adjust to the new outlook for oil prices.
This caused Kuwait to scrap an awarded oil project with a value of
around 120 million Kuwaiti dinars (USD 400 million). The weak crude
oil prices driven by COVID-19 pandemic proved strong enough for the
state-owned Kuwait Oil Company (KOC) to cancel the contract for the
development of heavy crude oil facilities in the North. Other local
oil firms consider freezing more projects to slash capital
expenditure.
Moreover, OPEC+ will have to consider the impact that the
recovery of Libya's crude oil production and exports could have on
oil prices. According to the US embassy in Libya, General Khalifa
Haftar planned to reopen the country's oil ports by September 12th.
The oil terminals have been blockaded in January, suspending
exports. As a result, production dropped from more than 1.2 million
b/d to less than 100,000 b/d. The National Oil Corporation declared
force majeure on exports soon after.
OPEC Crude Oil exports in the first half of September seem to
have slowed down from the previous month, with most recent data by
IHS Markit Commodities at Sea
suggesting that the cartel has been shipping less than 17 million
b/d so far this month. Shipments reached 17.6 million b/d in August
2020.
OPEC shipments of crude oil by status (Completed and in
transit) in b/d
