OPEC saw its crude oil production dip by nearly 500,000 bpd in January from December, overcomplying with the collective cut, the monthly S&P Global Platts survey showed on Friday, but the cartel is already considering deepening the current cuts in response to the coronavirus outbreak which is battering oil demand.
OPEC’s leader Saudi Arabia fulfilled its pledge to continue over-complying with the cuts and Libya’s supply sharply dropped due to the ongoing port blockade, the Platts survey showed.
OPEC’s crude oil production fell by 470,000 bpd from December, to 29.08 million bpd in January, the first month in which the current stricter cuts are in place, the survey found.
According to the monthly Reuters poll from last week, OPEC’s crude oil production in January dipped to more than a decade low at 28.35 million bpd, with Saudi Arabia and its Gulf Arab allies over-complying with the cuts, and Libya’s oil supply falling due to the port blockade.
Both surveys found that the cartel continued to achiever higher cuts than pledged, mostly thanks to Saudi Arabia ‘leading by example’ and reducing production more than its share in the OPEC+ deal. The Libyan port blockade also dragged OPEC’s production down.
Iraq and Nigeria, laggards in compliance in the deal, continued to produce above their quotas in January, according to the Platts survey, while Venezuela raised its oil production to a year-high of 820,000 bpd, up by 100,000 bpd from December.
Even with 128-percent January compliance, as per Platts, OPEC could be in for another round of deeper cuts as the cartel and its non-OPEC allies led by Russia are considering additional reductions to prevent a massive oversupply as the virus outbreak in China is inflicting the worst oil demand shock to markets in more than a decade.
The technical panel of the OPEC+ coalition is recommending an additional cut of 600,000 bpd in response to the lower oil demand, but nothing concrete has been decided.
By Tsvetana Paraskova for Oilprice.com
ADVERTISEMENT
More Top Reads From Oilprice.com:
- The Investment Bank That's Still Bullish On Oil
- Coronavirus Pushes China Jet Fuel Sales Down 25%
- Rising Crude Inventories Fail To Halt Oil Rally
But with China virtually in quarantine and therefore closed to business and unable to receive crude oil shipments, one would expect its oil demand to decline significantly with some estimates going as high as 3-0 million barrels a day (mbd). That is what is pushing oil prices down.
Even if OPEC’s production plunges by 1.0 mbd on top of Libya’s virtual loss of all its production, this will not arrest the continued decline in global oil demand until the outbreak is contained. This is not due to lack of demand but to physical inability of China to import and receive crude oil while it is in quarantine.
That is why I have been repeatedly saying that deepening the OPEC+ production cuts by even another 1.0 mbd will go down the drain and will be a total waste of time, ill-conceived and futile with no effect whatsoever on oil prices and will only lead to a loss of market share. Only a containment of the outbreak will rejuvenate the market and when it does global oil demand and prices will more than recoup all their losses in the past five weeks.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London