Saudi oil keeps flooding market with output pact yet to begin

Daniel Fowler
April 18, 2020

By late Tuesday morning, it was trading at United States dollars 31.42, just half the price it commanded before the Corona crisis brought most of the world to a standstill.

Total stocks of crude oil and petroleum products, excluding the strategic petroleum reserve, have surged by nearly 84 million barrels over the last four weeks, according to the U.S. Energy Information Administration (EIA).

Despite the deal, USA benchmark crude was trading at about $22 a barrel Monday, well below what most producers need to financially survive.

Dissatisfied with Russia's refusal to cut production, Saudi Arabia embarked on a war whose weapons took everyone aback.

Brent crude was up 69 cents, or 2.5 per cent, at $28.38 a barrel by 0102 GMT.

The collapse prompted top producers to tighten the taps to stop haemorrhaging precious oil revenues.

The Organization of the Petroleum Exporting Countries (OPEC) and allied producers including Russian Federation, a grouping known OPEC+, have agreed to reduce output by 9.7 million bpd, while hoped-for cuts of another 10 million bpd from other countries including the United States could lower production by 20 million bpd.

Yet traders remain doubtful over the impact because the cuts nevertheless fell short of expectations, amid fears over plunging demand on COVID-19 fallout.

Canada and Norway had signalled a willingness to cut and america, the place laws makes it onerous to act in tandem with cartels corresponding to OPEC, stated its output would fall steeply by itself this yr due to low prices.

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It remains unclear when bars, cafes and restaurants - which also are closed, apart from for takeouts - will be allowed to reopen. Irrespective of the size of their store, book, auto and bicycle dealers will then also be able to welcome customers again.

Elsewhere, India is diverting 19 million barrels of Middle East oil from state-run companies to SPRs to help refiners to offload surplus oil, three sources said.

Video aired by the Saudi-owned satellite channel Al-Arabiya early on April 13 showed the moment Saudi Energy Minister Prince Abdulaziz bin Salman, a son of King Salman, agreed to the deal.

"The global market will tighten, and prices will rise", said Esai, warning however that there are "several uncertainties" in terms of market perceptions tempering the price recovery.

Finally, in a reported, but not confirmed, side deal, Saudi Arabia, Kuwait and the United Arab Emirates could agree to reduce production by an additional 2 million barrels of oil per day. It was a joint effort to rebalance the oil market and shield it from further pain, following the double blow of Saudi production hikes and a historic demand plunge amid the coronavirus. The cuts of 2.5 million barrels a day will be a "tremendous challenge" for the nation's oil industry due to hard geological conditions, Oxford Energy analysts said in a research paper published Monday. Crude demand has taken a hit in recent weeks as measures taken by authorities to stem the spread of the coronavirus pandemic have left major economies effectively frozen. Additionally, the United States will see production cuts of at least 2 million barrels as the market responds to a lack of demand.

However, the International Monetary Fund did also admit that the rapidly falling cost of oil - which greases the wheels of the global economy - should nevertheless give a big boost to consumer nations.

American officials have gotten involved with OPEC in the past, making phone calls or attempting to sway a deal during worldwide crises and unusual circumstances.

Compliance among OPEC member nations over the cartel's production quotas has always been a controversial topic, analysts agree.

Excluding the voluntary contribution of Saudi Arabia the transaction was executed in OPEC+ 77%.

The shale oil revolution, which refers to the combination of hydraulic fracturing and horizontal drilling, has made it commercially feasible for oil producers to recover more oil and gas.

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