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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.
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)
