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Seaborne crude oil shipments by the OPEC+ group rose in
September without busting the agreed ceiling as some members looked
to the export market in the face of declining domestic refinery
runs while others struggled to hold back output.
OPEC members shipped out 18.2 million b/d, up from the 17.53
million b/d exported in August, data from IHS Markit Commodities at Sea.
Shipments from the biggest plus member, Russia, rose modestly to
3.59 million b/d from 3.52 million b/d in the face of a drop in
local demand.
As a group the Vienna Alliance exported more than 22.84 million
b/d in September versus 22.11 million b/d in August. This should
put the group within their target after securing a 102% compliance
for the previous month, according to a report prepared by the
group's Joint Technical Committee.
On the other hand, exports from Brazil, US and Norway, the
biggest non-OPEC+ producers, fell sharply due to various reasons
including FPSO maintenance, tropical storms and voluntary cuts,
with shipments falling to 4.88 million b/d from 5.45 million b/d,
which is the lowest the three countries have exported as a group so
far this year.
The unexpected large output reduction from the bigger non-OPEC+
countries was a much needed boon for producers as a resurgence of
COVID-19 cases in several parts of the world brought demand
concerns back into focus, which until recently was enjoying a
purple patch as social distancing measures were scaled back.
However, fresh outbreaks and unrelenting spread of the virus in
countries such as India have dented hopes of a sustained demand
recovery leading to a pullback in crude oil prices. Brent crude
futures, for example, reached a high of $46.05/bbl on August 25
before falling below $40/bbl in early September, closing at
$39.69/bbl on September 16. It has since then traded in the low
$40s/bbl.
The uncertainties surrounding demand mean that OPEC+ must keep a
close eye on output and ensure that members do not breach their
quota as new challenges emerge such as the restart of production in
Libya. Saudi Arabia and Russia, the group's two biggest producers,
are leading by example and have been absolutely resolute in
ensuring compliance.
The UAE, a key ally of Saudi Arabia, surprisingly breached its
quota pumping extra volumes into the market in August and September
but has since then announced a 30% cut to trim loadings in October
and a 25% drop in November, with sources saying a similar reduction
is likely in December.
Commodities at Sea data show
shipments in August and September at 2.54 million b/d and 2.61
million b/d, which are a lot more than the around 2.1 million b/d
exported in May and June.
Crude oil shipments to China by major suppliers in 2019
and 2020 so far, in b/d
Saudi Arabia's crude oil exports have recovered from their
lowest level observed in June as the Kingdom ended voluntary cuts
that have been in place since May. State-run Saudi Aramco cut its
October official selling price (OSP) for Arab Light to all
destinations as the producer fought back to ensure that it did not
lose market share to competitive arbitrage barrels amid declining
refining margins.
Saudi Arabian exports returned to levels above 6.25 million b/d
in September, close to levels last observed in March 2020, before
the massive increase in April following a breakdown in OPEC+ talks
to reign in production. In the first nine months of 2020, Saudi
Arabia exported an average 6.25 million b/d, almost unchanged from
the same period last year.
However, it's interesting to highlight that shipments from Saudi
Arabia to China have increased by 19% from a year ago to an average
1.48 million b/d so far this year. China now accounts for almost a
quarter of Saudi Arabia exports. This appetite from China, partly
due to the building of commercial and strategic inventories, helped
offset declining flows to other countries, including Japan, where
the industry is facing an existential challenge. Flows to Japan are
down 18% so far in 2020 vs 2019.
Seaborne exports from Russia reached 3.6 million b/d in
September, above the 3.3 million b/d shipped in July. However, this
is much lower than the average 4.6 million b/d exported in Q1 2020.
Shipments from Russian ports between January and September are down
14% year-on-year.
Focusing on the second-biggest Middle East OPEC members, exports
from Iraq increased only marginally in September at 3.1 million b/d
after it reined in shipments heavily since August on the back of a
rebuke from Saudi Arabia and Russia. Iraq had shipped 3.77 million
b/d in May and in these two months took great effort to compensate
for the overproduction, slashing output by about 400,000 b/d. It is
back to producing at quota levels and has been offering more
October loading barrels as a result, which has also dampened its
crude grades slightly in recent weeks. Premiums for Basrah Light,
for example, dropped to around $0.30-$0.40/bbl from about
$0.60-$0.70/bbl last month.
Crude oil exports from Nigeria, Angola and the rest of West
Africa have only marginally increased but remain within quotas
agreed with OPEC. However, the majority of Nigerian crudes are
facing a lot more issues finding a home due to their high gasoline
and middle distillate content, which at the moment is not hugely in
demand.
Heavy-sweet crudes are easier to place as the demand for marine
fuels remains stable amid strong demand for high-sulfur fuel oil
from the Middle East during the peak summer months. Naphtha-rich
grades are also popular due to strong petrochemical interest.
Nigeria reduced its OSPs for successive months as the crudes,
which generally trade at a premium to Dated Brent, were priced at a
discount to the benchmark.
The October OSP for key grades such as Bonny Light and Qua Iboe
were set at Dated minus $0.37/bbl and $0.56/bbl, respectively, down
from plus $0.20/bbl and $0.16/bbl in September in the face of scant
demand amid competitively priced Middle East barrels where Saudi
Aramco made hefty cuts to its term prices.
Rebalancing global oil prices is a challenging task for OPEC+ in
the wake of the demand uncertainty. The Alliance recently relaxed
its production cuts by two million b/d, but the market is facing
difficulty absorbing the additional volumes in parallel with the
ongoing COVID-19 pandemic.
A new twist comes in the form of returning Libyan output after a
blockade that was in place for much of this year was lifted. The
National Oil Co. (NOC) plans to increase production to 260,000 b/d
this week from around 100,000 b/d when the barriers were in place.
Production will be pushed yet higher once more oilfields start
operating again but the scale of damage caused by the months of
fighting remains unclear. IHS Markit expects output to likely rise
to at least 400,000 b/d in the coming weeks and potentially higher
compared with the near 1.2 million b/d pumped prior to the
blockade. Libya has already shipped at least two cargoes from
storage tanks, or close to 200,000 b/d in the past week.
However, the key Ras Lanuf and Es Sider ports remain under force
majeure, according to NOC, while export terminals in the east have
been cleared. Depending on how quickly Libya is able to ramp up
production is the big question. At current forecast levels of
300,000-400,000 b/d, it is not likely to cause too much concern to
OPEC+, whose focus is on compliance and compensation.
