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OPEC+ October seaborne exports stable aided by a large drop in Saudi Arabian shipments

03 November 2020 Fotios Katsoulas Raj Rajendran

Seaborne crude oil shipments by OPEC producers dipped marginally, by 73,000 b/d in October, helped by a hefty 386,000 b/d cut in Saudi Arabia exports from September. OPEC members shipped out 17.7 million b/d, preliminary data from IHS Markit Commodities at Sea has shown.

Shipments from the biggest Plus member, Russia, rose to 3.83 million b/d from 3.54 million b/d, taking flows from the OPEC+ group to 22.5 million b/d from 22.37 million b/d in September.

Seaborne crude oil exports

Source: IHS Markit Commodities at Sea

OPEC remains cautiously optimistic about global oil demand recovery with its Secretary General Mohammed Barkindo asserting at the CERAWeek India Energy Forum last week that the contraction in global oil demand in the second quarter is not expected to be repeated despite a resurgence of COVID-19 cases in Europe and the U.S.

However, the rising cases and subsequent social distancing measures implemented in many countries including major European economies such as Germany, France, UK and Spain as well renewed exports from Libya have raised doubts if OPEC+ would follow through on its plans to boost global oil supplies from January.

The Vienna Alliance, consisting of 13 OPEC and 10 non-OPEC producers, has adhered quite strictly to production cuts of around 7.7 million b/d with those who have failed making compensatory reductions. This will shrink to 5.8 million b/d from early January 2021 and expected to last until April 2022 but rising production from Libya, which was shut since January, has caused uncertainty.

On the back of the resurgence in COVID-19 cases, leaders from Saudi Arabia and Russia, the group's two biggest producers, have sounded out the need to be flexible in the output cuts and voiced concerns over the patchy global fuel demand recovery with only key Asian countries such as China and India registering solid growth.

The forward market, as seen through a flattish Q1 curve just over a week ago that has now widened deeper into contango as the flat price fell heavily, is pointing towards a rollover of the output cuts into January from December with the likelihood that these would be tweaked on a monthly basis similar to that done in July.

In its statement on 19 October following a Joint Ministerial Monitoring Committee (JMMC) meeting, the group said that the monthly report prepared by its Joint Technical Committee (JTC) showed overall compliance by participating OPEC and non-OPEC countries at 102% in September, which is the highest since May.

Apart from Saudi Arabia, the major reason the global market is not flooded with crude oil in October, there were significant drops to exports from Venezuela that we should not forget to mention. Shipments from West African producers, such as Nigeria and Angola, remain low, reinforcing the high compliance to quotas agreed in the OPEC+ production cut agreement.

Oil prices have struggled to recover in recent weeks, with news of Libya's rapid recovery and the string of lockdowns in European countries shaping market sentiment. Exports from Libya surpassed 300,000 b/d in October, with production already exceeding 500,000 b/d and targeting one million b/d in the near-term. The country is so far excluded from the production cuts.

Global crude oil inventories remain above five-year average levels due to lukewarm consumption. On the positive side, Indian refiners are increasing volumes of crude oil processed, which could support shipments to the country in the coming months. Run rates in China are also holding at high levels.

However, the global market will need to absorb an additional two million b/d in early 2021 if there's no accord to extend current bigger cuts on top of the volumes pumped out by Libya. This could prove challenging and will most probably add severe pressure to prices. Meanwhile, crude in floating storage has dropped below 70 million barrels in recent weeks, which is still a very high level.

Focusing on non-OPEC+ producers, exports from the U.S. dropped to 2.4 million b/d in October, the lowest so far this year and the first month to report a year-on-year decline. Inventories remain high, nearly 9% above the five-year average, but have fallen quickly from around 14% in July.

Norway's crude oil exports returned to levels above 1.5 million b/d, from 1.2 million b/d in September, while shipments from Brazil remain close to 1.3 million b/d, marginally up from a month ago.

With crude production and exports from Libya set to rise, global supply is not expected to decline, even if OPEC+ decides to postpone the agreed increase in current output levels. Against a backdrop of slowing fuel demand in Europe and the U.S., even as the industry enters the peak winter heating season, it is all the more important for the group to extend their bigger output cuts into January to avoid significant price drops.

For now, November shipments are set to comply strictly with the quotas set in place according to loading programs released so far from West African nations, Russia and Norway as well as nominations by term buyers to Middle East producers.

Abu Dhabi National Oil Co. (Adnoc), the biggest oil producer in the UAE, informed term customers of a 20% reduction to December volumes, on the heels of a 25% cut to November and 30% drop to October loadings following its overproduction earlier in the year.

Crude oil shipments to India by region of origin (b/d)

Crude oil shipments to India by region of origin

Source: IHS Markit Commodities at Sea

Libyan crude oil export destinations by Country (b/d)

Libyan crude oil export destinations by country

Source: IHS Markit Commodities at Sea

Russian crude oil exports by region (b/d)

Russian crude oil exports by region

Source: IHS Markit Commodities at Sea

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Posted 03 November 2020 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, IHS Markit and

Raj Rajendran, Principal Journalist, OPIS

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