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Light on the horizon: oil prices pop on July 15 OPEC+ agreement
Steve Sutherlin Petroleum News
Oil prices popped higher July 15 on news that the Organization of the Petroleum Exporting Countries and allied producers, collectively known as OPEC+, had agreed on a new set of production restraints in a virtual meeting of the Joint Ministerial Monitoring Committee, sending the Brent price about 2% higher for the day at $43.65 per barrel.
Prices were further supported by a sharp surprise drop in U.S. oil inventories, and by positive news early in the week on testing of a coronavirus vaccine from the National Institutes of Health and Moderna Inc.
OPEC+ is actually raising production, which normally might be seen as a drag for prices, but the production increases were below what had been anticipated by traders.
OPEC+ will taper its production cuts from 9.7 million barrels per day to 7.7 million barrels per day, beginning in August, and continuing through the end of the year.
The actual production cut might be higher if laggards in the group make compensatory cuts starting in August due to missed targets earlier in the year.
The committee said it requested underperforming participating countries to submit a plan for implementation of the required compensation for the month June to the OPEC Secretariat by the end of July.
The reduction in production cuts has been anticipated by the market, as OPEC has signaled its opinion that the market is improving, despite daily headlines concerned over rising COVID-19 levels in the United States and elsewhere.
“Looking ahead, there is light on the horizon as some of the world’s largest economies have begun phasing out their national lockdowns, which has ushered in a much welcomed surge in oil demand,” said OPEC Secretary-General Mohammad Sanusi Barkindo, at a June 30 African ministerial roundtable co-hosted by the Senegal Ministry of Petroleum and the International Energy Agency, via video conference.
Positive supply-side momentum sprang from oil output reductions following historic OPEC-Non-OPEC Ministerial decisions in April and June, he said, providing much support to the market balancing process.
But, the secretary-general said, “We are not out of the woods yet.”
“We must remain vigilant in order to address a forecasted contraction in global oil demand estimated at 9 million barrels per day for 2020,” he said, citing the OPEC Secretariat’s latest forecast.
“This is a massive undertaking, and we need all industry stakeholders to contribute,” he said.
The monitoring committee said that achieving 100% conformity from all participating countries is not only fair, but vital for the ongoing rebalancing efforts and to help deliver long term oil market stability.
The committee said that extra supply resulting from the scheduled easing of the production adjustment will be consumed as demand recovers.
“While there could be localized or partial lockdowns re-imposed in some places, the recovery signs are clear, both in physical and futures markets,” it said.
US helped support prices Barkindo told IHS Markit in a June 29 interview that the intervention of the United States, the G-20 and other leading producing countries was vital in securing April’s historic production deal.
“We were able to reach out to the U.S. independents and we had established a line of communication with them; we have reached some level of comfort among ourselves,” Barkindo said. “They have been participating also at their own levels to ensure that this conversation is inclusive and is led by the biggest producers.”
Barkindo said OPEC sees its relationship with U.S. producers as one of support and cooperation.
“There is no objective whatsoever from us as a group or as individual countries to drive U.S. shale production out of business,” he said. “No. It is not in our interest to do that. It is not in the interest of the global industry to do that. Without the U.S. shale probably, we could have entered into a worse crisis than we are seeing in this pandemic.”
“Everybody has a role to play. We need to balance the various variables. You have supply. You have demand issues compounded by a virus that has triggered a worldwide pandemic and is still ongoing,” Barkindo said. “This industry is a global industry. Without the leadership of the U.S. it would be impossible for any group of countries to be able to maintain sustainable stability.”
- STEVE SUTHERLIN
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