An OPEC sign hangs outside the OPEC Secretariat ahead of the 176th Organization Of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, July 1, 2019. /VCG
Editor's note: Dr. Yousef Alshammari, a former Research Fellow at the Organisation of Petroleum Exporting Countries (OPEC), is the CEO and Head of Oil Research at CMarkits, London, UK. The article reflects the author's opinions, and not necessarily the views of CGTN.
Prices gained some support last week on expectations of increased Chinese oil imports from the United States in August and September. The rise in Chinese imports is believed to be a part of the 2020 trade deal of which energy products account for 25.3 billion U.S. dollars including crude oil, liquefied natural gas, coal and other energy products.
According to data from Reuters, we understand that U.S. crude oil exports to China are below 85 million barrels year to date which is less than three billion U.S. dollars.
OPEC+ calls for greater compliance
Bullish factors failed to support oil prices over the past week, despite a clear signal of the need for greater compliance from OPEC+. Oil prices closed slightly changed, August 21, Brent Crude Oil closed at 44.35 U.S. dollars, down by one percent w/w, while West Texas Intermediate closed at 42.34 U.S. dollars, up by 0.78 percent w/w.
OPEC+ held its monthly Joint Ministerial Monitoring Committee (JMMC) last week, reviewing production levels over the month of July. According to Energy Intelligence, the organization reported overproduction of 2.309 million bbl/d between May and July. That does not include extra voluntary cuts from Saudi Arabia, UAE, Oman and Kuwait which amounted to 1.18 million bbl/d.
The largest overproducers were Iraq at 851,000 bbl/d, Nigeria at 315,000 bbl/d, Russia at 283,000 bbl/d, and Kazakhstan at 189,000 bbl/d. However, CMarkits understands that Iraq will undertake a deeper cut of 400,000 in August, while Nigeria is said to undertake a deeper cut of 114,000 bbl/d in August and September.
Other overproducers including Gabon, Congo, Equatorial Guinea are said to submit their compensation plans by August 28. We also understand that total additional cuts will amount to 1.15 million bbl/d in August and September, respectively.
The OPEC+ figures showed compliance of around 95 percent for the month of July. The non-OPEC's Joint Technical Committee (JTC) meeting, which was held before the JMMC, did not recommend any change to the production policy, yet it recommended a deeper vigilance from countries which missed their targets.
There is a rising bearish sentiment among traders that demand could take longer than what was previously thought. This is fueled by rising COVID-19 cases in many parts of the world especially in India and the United States.
Last week, India reported the fourth consecutive monthly decline in crude oil imports in July, 2.93 million bbl/d (down by 36.4 percent y/y), which is the lowest in more than a decade. Adding to the bearish sentiment, President Trump has postponed trade talks with China which raises uncertainty over hopes of successful trade talks desperately needed to hasten economic recovery and to stimulate oil demand.
Shell's major oil and gas terminal on Bonny Island, in southern Nigeria's Niger Delta. /Xinhua
Limited markets response to EIA data
Data from the Energy Information Administration (EIA) were not very bullish as commercial crude inventories declined by 1.6 million barrels w/w, lower than the American Petroleum Institute (API) estimate of 4.3 million barrels, standing at 512 million barrels.
The U.S. crude oil inventories did not provide much enthusiasm as the stock draw was lower than anticipated, mainly due to the driving season approaching its end with a decline in travelling activity due to COVID-19.
Furthermore, there has been a withdrawal from U.S. strategic petroleum reserves (SPR) by 2.7 million barrels w/w, which reduced the level of SPR to 651.2 million barrels. In a previous report, we had expected U.S. withdrawal of inventories to slow in the months ahead due to the reasons mentioned.
The decline in crude stocks was associated with a decline in gasoline inventories by 3.3 million barrels w/w leading to a decline in refinery runs by 0.171 mbbl/d w/w to stand at 14.487 mbbl/d. We have also seen rising imports by 0.109 mbbl/d, to stand at 5.73 mbbl/d, and declining exports by 1.01 mbbl/d to stand at 2.137 mbbl/d.
Despite the unchanged oil production in the United States, on a weekly basis, the U.S. oil rig count recorded 11 rigs rise, the highest since January, 2020. This may lead to some production recovery in the remaining months of 2020.
U.S. petroleum products supplied are currently down by 2.20 million bbl/d w/w and 3.85 million bbl/d y/y, an indication of yet sluggish demand growth. The largest decline in product demand lies in the gasoline and jet fuel demand both of which are down by 0.997 million bbl/d and 0.929 million bbl/d y/y, respectively.
Major shut down in the Gulf of Mexico as hurricanes get closer
Currently, oil production in the U.S. Gulf of Mexico has undergone a significant outage, 60 percent of operations are currently shut as two hurricanes, Marco and Laura, are approaching the region. It is estimated that 114 out of 643 manned platforms were evacuated in the Gulf of Mexico.
The shutdown decision is expected to lead to a decline in production by more than 1.07 million bbl/d, which was reflected in the price upward movement in the Monday morning trading session.
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