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With around six weeks left until the next meeting of OPEC+
countries, Russia doesn't appear to be reducing its output and
exports. The country is now most likely not looking to renew its
participation in the supply agreement. The strategy that Moscow
will follow cannot be foreseen as signals sent so far and comments
recently made by officials only allow the market to guess what
could follow, with sentiment having changed over and over during
the last couple of months. However, we should consider that
seaborne flows from Russia might strengthen as a response to higher
uncertainty around the country's oil supplies to Europe via the
Druzhba pipeline.
Data made available by IHS Markit's Commodities at Sea, is clear,
Russia has been loading around 2.6% more so far in May than a month
ago. Meanwhile, the country has been famous for keeping its cards
very close to chest. And it doesn't seem to be the only one doing
so, as uncertainty seems popular among OPEC members as well. Since
the US decided to end all sanction waivers on Iranian barrels, the
cartel is now facing an important milestone for the year. The
market must adjust quickly as demand remains quite healthy and
strong, with some of the major importers, such as China, India,
Japan and South Korea, looking for the best replacement in such a
tight market. The gap to be created is not yet clear, as some
Iranian barrels are still in transit, with the impact to become
clearer once we approach June. It will then become obvious exactly
how much supply has been lost, with Saudi Arabia and potentially
the United Arab Emirates having to step in to offset any
shortages.
Saudi Arabia continues to ensure the market how flexible and
ready it is to meet any future requirements, even if the country
still prioritises working "towards market stability". Officials
have been commenting that the country won't rush in to ramping up
production, but loadings during the first ten days of May have
already increased significantly. Liftings have surpassed seven
million barrels per day for the first time since Q4 2018.
Focusing on Russia, Finance Minister Anton Siluanov said that
OPEC and Russia might focus on fighting for market share against
the US, which would probably require them to abandon the OPEC+
deal, pushing oil prices much lower. This won't be that dramatic
for most Russian oil companies, who continue to press the
government against any future output cuts, as they would benefit
from higher oil production, as long as oil prices remain above USD
55 per barrel. Increasing production is essential for some of the
country's companies planning to develop new oil fields and minimise
declines from maturing fields, primarily across the Urals
region.
Posted 14 May 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade
