The worst of the oil market is behind us, Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman said on Monday at CERAWeek's India Energy Forum.
"We are still vigilant. I think there is a big shift all together in terms of where we are today and where we were in April and May," bin Salman added.
But it is unclear what part of the worst is in the rearview.
If the Energy Minister is referring to oil demand, the largest importer of crude oil—China—is expected to slow its imports after the oil-thirsty nation bought extra crude over the last few months to take advantage of the ultra-low prices in the market. So much so had China taken extra crude, it created a backlog in customs, which is now clearing up—a sign that it is slowing.
This is to be expected now that oil prices have rebounded to nearly double what they were in April.
But along with those higher oil prices comes an end to the hunt for bargains in the oil market—and consequently, the end to artificial demand.
In the U.S. market, the worst is definitely not behind it. Oil production is still falling—not even holding steady, let alone increasing. At an average of 9.9 million barrels of oil produced per day, the United States is producing 3.2 million bpd less than it was in April. Despite the dropoff in production, U.S. crude oil inventories are still 10 percent above the five-year average.
What's more, the merger and acquisition space is heating up, with notable mergers in Canada and the United States as struggling oil and gas companies are snatched up by those better situated to whether the pandemic. Notable tie-ups include Chevron and Noble, Pioneer and Parsley, and most recently, Cenovus and Husky. This indicates that the worst is not behind us, and more mergers are expected in future quarters as companies falter.
But those signs won’t stop oil-dependent countries such as Saudi Arabia from jawboning to keep oil prices from falling too far.
By Julianne Geiger for Oilprice.com
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The first is China which continues to confound the word with its economic rebound and its record-breaking crude oil imports. China’s oil imports in the first 10 months of 2020 averaged 11.56 million barrels a day (mbd) and were 12.7% higher than the same period in 2019 despite the Covid-19 pandemic. Furthermore, the IMF is projecting that China’s economy will grow at 6.8% in 2021 compared with 6.1% in 2019 despite the pandemic. What is being described as slowing Chinese imports is only a difference between breaking records and growing higher than their equivalents in 2019. Still, the base line of imports continues to be higher than 2019.
The other bullish influence is the continued steep decline in US oil production (overwhelmingly shale oil).The US shale oil industry has lost so far this year 6.37 mbd as a result of the pandemic. Yet, US Energy Information Administration (EIA) is only admitting to a loss of only 3.2 mbd grudgingly releasing the information in drips and drops.
A third bullish influence is that OPEC+ has indicated that it will extend the current cuts of 7.77 mbd into next year. The original scenario was for OPEC+ to reduce the cuts to 5.77 mbd from January 2021.
And while the current fundamentals could easily support a Brent crude oil price of $45-$50 a barrel this year, they are facing intense head winds from a fear of a resurging pandemic.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
So whenever production goes up than it is required, worst phase begins again.
Oil producers must ensure that they keep tight control over oil production tap for really long time.
Exactly. China has been the buffer for the oil industry for a while but that was artificial demand and it is coming to an end. The pandemic is still not going to go away anytime soon. This is going to be rough winter for everyone including oil business.