Global oil markets need much more crude than what the OPEC+ is planning to add by the end of this year, the head of Vitol Asia said July 4, as the coalition is set to convene virtually July 5 to resolve fractious talks on further relaxation of quotas between August and December.
The OPEC+ coalition was set to agree last week to boost collective crude output by 400,000 b/d each month from August to December and extend their supply management agreement through the end of 2022. But the UAE has stymied the agreement by insisting its baseline production level from which its quota is determined should be raised, which other countries have said is unfair, delegates told S&P Global Platts on the condition of anonymity.
“There is very little doubt, that whatever OPEC agrees by way of lessening of the cutbacks it will surely …. be a fraction of that amount needed to meet demand,” Mike Muller told a Gulf Intelligence webinar. Vitol is the world’s largest independent oil trader.
“OPEC are in a big chunk of the way towards their stated objective of getting the global inventory overhang back to manageable levels from their perspective, which is basically 2019 norm and we still have a market which has an outlook which for the spot months there is going to be more demand than supply.”
Platts Analytics forecasts global oil demand will rise 8.8 million b/d from June to December.
Unanimous approval
OPEC’s 2 million b/d collective increment in supply between August and December is at the low end of demand estimates, according to Muller.
“I think there is 100% consensus there that this sort of extra volume from OPEC+ combined with the fact that the rig count in the US is unable to bring us extra production from North America is going to see inventories continue to draw,” Muller said.
Ministers adjourned their online proceedings late July 2, agreeing to take the weekend to regroup and reconvene July 5 at 3 pm Vienna time (1300 GMT).
All OPEC+ agreements require unanimous approval.
The OPEC+ impasse helped push oil prices higher, with Platts assessing Dated Brent at $77.62/b on July 2, its highest since October 2018.
The UAE, OPEC’s third biggest producer, wants a higher baseline as key energy producer Abu Dhabi National Oil Co. has plans to boost its oil production capacity to 5 million b/d by 2030 from 4 million b/d now.
Hurried baselines
The UAE pumped 2.64 million b/d in May, achieving 103.73% compliance with its quota, according to the latest Platts OPEC+ survey.
The dust-up threatens to unravel a coalition that has cooperated since 2017 on reining in output to prop up the oil market, including a historic 9.7 million b/d cut during the worst of the pandemic-induced crash in mid-2020 that has been gradually unwound.
The producer group has been under heavy pressure to keep rolling back its cuts and cool a market that has steadily risen in tandem with the global economy’s emergence from the pandemic.
OPEC+ reached the May 2020 agreement after turning on the taps a month earlier in an oil price war that threatened to undo the coalition after key producers Russia and Saudi Arabia disagreed in a March meeting to hammer out an agreement.
“Of course the baseline was set in a great hurry because we must not forget there was a pandemic that was ravaging the world and we had a falling apart in March which had to be stitched up very very quickly at a time when Saudi Arabia, and Abu Dhabi were doing production tests,” said Muller.
“In early April (2020) OPEC+ got together and implemented what we have now, and in that rush it is inconceivable that every party was happy with the baseline that was chosen.”
Source: Platts