The oil market is set for a deficit from August onwards, even after OPEC+ eases the current cuts that are up for a tentative extension through July, Rystad Energy analysts said on Friday.
Assuming that global demand recovery continues in the coming months, the oil market will still be in deficit even after the OPEC+ group relaxes the current cuts from 9.7 million bpd to 7.7 million bpd, as currently planned, Rystad Energy's Head of Oil Markets, Bjornar Tonhaugen, said, as carried by Oilfield Technology.
"That will ensure a fundamental support for prices, while also spurring a quicker reactivation of curtailed US oil production, and eventually frac crews ending their holidays early," Tonhaugen said in a note.
"Indications show that a bit more than 300 000 bpd from shut US production is actually coming back online already from June as a result of the current price levels," he said.
Some U.S. producers have already restarted some curtailed production as prices have rallied in recent weeks and as they need the cash from operations, regardless of how little.
The market deficit coming this summer, however, doesn't mean that there will be a global oil supply crunch, because inventories and floating storage have yet to begin depleting.
"So, even if demand exceeds supply for a while, that does not mean that we really have a problem to source oil. Oil is there, lots of it, waiting to be drawn from storage facilities," Rystad Energy's Tonhaugen said.
Improving global oil demand and faster-than-expected production curtailments from outside the OPEC+ pact are set to push the oil market into deficit in June, according to Goldman Sachs. Yet, there is little room for an oil price rally in the near term because of the still sizeable oversupply of crude oil and refined products, Goldman Sachs said in a note in the middle of May.
Earlier this week, Russia's Energy Minister Alexander Novak said he expected a shortage in the oil market in July.
By Tsvetana Paraskova for Oilprice.com
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Comments
Oil is stuck.
Recent projections from the Russians suggest that the oil market could swing into a shortage from in July whilst other projections suggest that this could happen from August onwards.
An acceleration of the global oil demand will mean that the glut in the market will start to deplete fast thus putting a solid floor under oil prices and also pushing them higher.
Still, my calculations suggest that global oil demand could reach 98.30 mbd in 2020 compared with 101.34 mbd in 2019, just 3 mbd less despite the horrendous destruction of global oil demand by the coronavirus outbreak.
As for US oil production, the US shale oil industry will emerge leaner from the outbreak but with virtually no influence in the global oil market. It might manage to muster 7-8 mbd with US crude oil imports projected to rise from 9 mbd in 2019 to 11-12 mbd in the next two years.
Goldman Sachs is contradicting itself when it says that Improving global oil demand and faster-than-expected production curtailments from outside the OPEC+ pact are set to push the oil market into deficit in June and yet there is little room for an oil price rally in the near term. But the oil price is already rallying and is projected to reach $50 a barrel in the second half of this year and touch $60 in early 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London