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There is no doubt that Saudi Arabia is still determined to
support oil prices, even if its production would have to be further
cut. The country's energy minister recently expressed the Kingdom's
plans to convince the cartel's other members and their allies into
a deeper production cut during the next OPEC+ meetings, to be held
in December.
Reduced Saudi production output has remained, since the end of
2018, a strategy followed by Russia and most OPEC members such as
the United Arab Emirates. Their effort hasn't been as successful as
they wished, even if Iranian exports have collapsed, together with
a sharp decline in Venezuelan output observed. Brent moved below 60
USD per barrel last week. The market's sentiment is heavily
affected by the escalating tension between Washington and Beijing,
with fears that the trade war between the world's two biggest
economies will disturb global economy's performance and as a result
demand for oil as well. Meanwhile, as increasing risks threaten
demand growth, supply is set to further expand, as the US shale
production keeps on rising, with a surplus to be developed next
year.
OPEC would have to reduce production by around one million b/d
for prices to be supported close to 60 USD per barrel for long.
This would be close to 1% of the current global supply. The market
is sceptical regards Russia's willingness to agree on additional
production cuts, especially as some of the major fundamentals
remain quite positive. Inventories are slowly tightening, while the
US shale boom might be approaching a turning point, with some
analysts already looking rather pessimistic for 2020. With share
prices of US companies remaining weak, improving cash flows will be
more important than further increasing output. Downwards pressure
against prices has been primarily driven by the weakening of
currency of China and the country's economic growth slowing down.
And of course, the market's expectations for a surplus in 2020, as
Non-OPEC barrels will continue rising faster than demand.
Action will need to be taken by Saudi Arabia sooner than later
to maintain the market around 60 USD per barrel. Stronger oil
prices will be required for Riyadh to proceed with Aramco's IPO.
Russia's participation can't be taken for granted, even if
President Vladimir Putin seems to value the relationship
established with OPEC, as several Russian companies already face
difficulties due to the production cuts.
Middle Eastern crude oil liftings fell sharply in July, with
overall volumes down by more than 800 thousand b/d. This is a
decline of around 5% month-on-month. However, volumes have
stabilised in August so far, with current volumes standing only
marginally below last month's totals, close to 16,500 thousand b/d.
It has been primarily Saudi Arabia's loadings that have been
declining, while Iranian exports remain below 100 thousand b/d.
IHS
Markit's Commodities at Sea shows a similar decline in volumes
loaded in North Africa as well. The activity has been under severe
pressure in Libya, with a month-on-month decline of 22% to report
so far in August. However, levels are now expected to return closer
to normal levels, as the country's oil production is approaching
normal levels once again. Meanwhile, Algeria recorded significant
additions in July, but the positive trend doesn't seem to last, as
volumes in the first half of August have been down sharply.
In contrast to what has been happening in the Middle East Gulf
and West Africa, both Nigeria and Angola have been loading more
crude oil on tankers so far in August, with overall quantities up
by 7.3% month-on-month. However, the Angolan loading schedule for
September and October has been declining.
Focusing on Latin American members of OPEC+, volumes from
Venezuela seem to be slowly recovering, with August loadings
currently standing 7% higher than July's levels, while activity in
Ecuador is unchanged. It's interesting to note the sharp decline in
Mexico's liftings so far, with barrels loaded on ships during the
first half of August down by 20% month-on-month.
Posted 29 August 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit