Reuters: OPEC + needs to offset a large excess supply in May-July
Economy News - Baghdad
Sources from OPEC and an internal OPEC + report said that the oil-producing countries within the OPEC + group that pumped more than the target supply in the period from May to July will need to reduce production by more than one million barrels per day for a period of two months in order to compensate.
The group of producers includes members of the Organization of the Petroleum Exporting Countries and other oil powers, including Russia, who all pledged to implement unprecedented cuts of 9.7 million barrels per day in May to eliminate a massive supply glut after coronavirus-related lockdown measures shattered global fuel demand. As demand began to recover, the group trimmed the cuts to 7.7 million barrels per day in August.
Some countries, such as Iraq and Nigeria, have failed to meet these goals and are under pressure from other OPEC + members, including Saudi Arabia, the organization's largest producer, to reduce production to ensure that it is compensated by the end of September for the excess production since the cuts were agreed upon.
A source from OPEC said that the amount these countries need to reduce is equivalent to 1.15 million barrels per day for two months, or 2.31 million barrels per day for a month, according to the OPEC + report.
The source from OPEC said, "These compensatory cuts for August and September only, and they are in addition to the production cuts that the members are currently implementing."
The source added that the additional cuts, if distributed evenly, would mean that the actual reduction in supplies from the group would be about 8.5 million barrels per day in August and September.
"This means that you will witness a significant decrease in the supply in the market over these two months," the source said.
Sources from OPEC said that those countries in OPEC + that will compensate for their extra production will have until the end of next week to submit their updated production plans to August and September.
In April, the impact of the Coronavirus pandemic on air and land travel and other sectors of the global economy led to a drop in record oil prices to less than $ 16 a barrel. The OPEC + supply cut and some rebound in economic activity, with the easing of lockdown measures, pushed prices up to just under $ 44 on Friday. The continuing spread of the virus now threatens expectations for a recovery in oil demand.
An OPEC + source said that the excess production in May was about 1.3 million barrels per day, and in June and July, 0.5 million barrels per day.
The total excess production equates to 2.3 million barrels per day for one month, or 1.15 million barrels per day for two months.
That equates to a total of 70 million barrels, or enough to load 70 large Swissmax tankers.
The report shows that OPEC + expects a decline in oil demand in 2020 by 9.1 million barrels per day, an increase of 100,000 barrels per day from its previous forecast, provided that demand will increase by 7 million barrels per day in 2021.
But OPEC + also expects an alternative scenario in which a second wave of the virus outbreak, stronger and longer-lasting, hits Europe, the United States, India and China in the second half of the year.
In light of this scenario, the report showed that demand is expected to decline by 11.2 million barrels per day in 2020, with the commercial oil inventories of the Organization for Economic Cooperation and Development countries in the fourth quarter reaching 233 million barrels above the average of the last five years.
Stocks will reach 250 million barrels, above the last five-year average in 2021.
The data shows that Iraq and Nigeria are the least committed members of OPEC. Even the UAE, which made additional voluntary cuts in June, overproduced by about 50,000 bpd between May and July.
For non-OPEC participants, Russia and Kazakhstan recorded excess production of 280,000 barrels per day and 190,000 barrels per day, respectively.