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Saturday, April 20, 2024 6:12 GMT
It was meant to be the week when OPEC nations gathered in Baghdad to celebrate the group’s six decades as a dominant force in global oil markets. Instead, the Organization of Petroleum Exporting Countries and its allies will convene online, and reflect on whether the coronavirus has thwarted their best efforts to keep the market afloat. After reviving crude prices from an unprecedented collapse over the spring, OPEC+ is seeing the recovery stall and fuel demand falter as the deadly pandemic surges once again. Prices slipped below US$40 a barrel last week for the first time since June.On Thursday, Russia and Saudi Arabia will chair a monitoring meeting to assess whether the vast production cuts, which they started easing in August, are still staving off an oil glut. New signs of exporters reneging on the deal aren’t helping. “There were some major assumptions built in on where demand and the recovery would be now, and it just hasn’t happened,” said Mohammad Darwazah, an analyst at research firm Medley Global Advisors LLC. “If I’m OPEC, I would be concerned.”The relapse is a source of acute financial distress for OPEC nations, from poorer members like Nigeria and Venezuela – who need crude prices far above current levels to cover government spending – all the way up to wealthy GCC states.Riyadh and Moscow had anticipated that a resumption in global economic activity, combined with the supply curbs, would sharply deplete the hoard of surplus oil inventory accumulated during lockdowns. But there are growing signs the market isn’t tightening so fast.The peak holiday driving season has passed in the US, yet rush-hour traffic is still sparse and crude inventories stubbornly high. In India, the third-biggest consumer, transport-fuel sales remained 20% below year-ago levels last month. Even in China, where refiners binged on crude at the height of the crisis, buying has slowed.Trading houses are hiring oil tankers on long-term contracts once again to store surplus barrels.And Libya, which is exempt from the output cuts because of a civil war that’s all but shut down its oil industry, may resume exports soon, according to US officials. The North African country’s production has slumped to less than 100,000 barrels a day from 1.1 million at the end of last year.The downturn isn’t yet severe enough for OPEC+ to re-impose the full output cutbacks made in the second quarter, according to Helima Croft, head of commodity strategy at RBC Capital Markets LLC. After tapering the cuts last month from 9.7 million barrels a day to 7.7 million, a sense of inertia means there will be a “high bar” for any new action, she said.“For the men who reside in the palaces and the presidential halls, there is a price at which they make a panicked phone call,” said Croft. “The question is, what is the price?”In theory, OPEC’s task should get easier next quarter as demand for winter fuels kicks in and a gradually mending global economy rekindles the need for road and aviation fuels, data from the International Energy Agency in Paris shows.But as the outlook continues to darken, the Saudis may choose to underscore their readiness to act.“We expect a strong statement that if markets continue to weaken, the producer group will be prepared to trim output further,” said Ed Morse, head of commodities research at Citigroup Inc.Habitual quota-violators like Iraq and Nigeria have so far implemented only a fraction of those extra curbs, and Baghdad is expected to seek more time to deliver the rest.