Saudi Arabia is mulling over canceling a planned relaxation of OPEC oil production cuts due to enter into effect next January, the Wall Street Journal reported, citing senior oil advisers from the Kingdom.
OPEC and its partners led by Russia agreed in April to reduce their combined oil production by 9.7 million barrels daily in response to the demand slump following the outbreak of coronavirus that caused prices to tank. The cuts were to be relaxed by 2 million bpd from July and then by another 2 million bpd from January 2021.
Prices, however, have not recovered to pre-crisis levels despite the cuts as demand remains sluggish amid the continuing pandemic. Global oil inventories are about 220 million barrels above the five-year average for this time of the year despite strong compliance rates among the participants in the cuts.
Yet while OPEC+ continues cutting, Libya, which was exempted from the cuts, has started ramping up oil production, and it is ramping it up fast. From below 100,000 bpd at the beginning of September, the North African country’s daily output has jumped to almost 300,000 bpd in early October as a blockade on oil export terminals was lifted for three of them.
“The market can’t take another two million barrels a day,” said one of the Wall Street Journal’s sources. The sources noted, however, that a decision on the cancellation of the output increase has yet to be made.
The news comes on the heels of an official OPEC report, which said the cartel expected global oil demand to rebound and even exceed the pre-pandemic levels in 2022 and grow steadily until the late 2030s, when it will begin to plateau.
“Assuming that the COVID-19 pandemic is largely contained by next year, oil demand is expected to partly recover in 2021 and healthy demand growth rates are foreseen over the medium-term horizon,” OPEC said in its World Oil Outlook report.
By Charles Kennedy for Oilprice.com
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