Emmanuel Addeh in Abuja with agency reports
There is uncertainty over the Organisation of Petroleum Exporting Countries (OPEC) and allies’ plan to return supply to the market after the group’s output cuts, while the covid-19 pandemic continues to spread across many major economies of the world.
Deep production curbs by the cartel and its allies had helped oil rebound from its plunge below zero in April, but it’s a precarious time to be adding more supply to the market, industry watchers say.
While West Texas Intermediate for September delivery added 0.3 per cent to $40.05 a barrel, WTI fell to trade beneath its 50-day moving average and Brent rose about 0.5 per cent to $43.15.
But OPEC+ plans to return about 1.5 million barrels a day to the market this month after cutting global supply by roughly 10 per cent when demand plunged as U.S. shale companies are also returning production, with ConocoPhillips the latest to announce plans to bring back oil.
“If oil-producing countries do not continue the co-ordinated cuts, oil prices could again fall below $40,” said Jun Inoue, an economist at Mizuho Research Institute in Tokyo.
“Although demand is expected to continue to recover and inventories are expected to decline, the pace of recovery in oil prices is expected to be moderate” he added.
OPEC oil production increased by one million barrels per day in July, as the cartel reduced its production cuts and major gulf members also ended their added voluntary cuts, as the body plans to ease production cuts by 7.7 million barrels a day.
The body pumped an average of 23.32 million bpd for the month of July, which is over 900,000 more than June when OPEC production hit its lowest level in 20 years.
In April, the oil cartel agreed to reduce production by almost 10 million barrels as the pandemic affected demand, leading to record price lows.
However, with the rising recovery in demand after April’s lows, OPEC agreed to increase production from a cut of 9.6 million barrels to 7.7 million barrels a day from August.
The reduction in cuts was backed by both Saudi Arabia and Russia, including other participating oil ministers in the virtual conference.
Saudi Arabia saw the biggest increase in production, pumping close to 8.4 million bpd, which is up 850,000 from their June quota.
But Nigeria and Iraq did not add any further cuts to their production in July after both nations achieved most of their quota compliance for the month. Nigeria has also promised to comply with it production quota for the coming months.
Reuters reported that total compliance for the month of June for production was revised up to 111 per cent, while an International Energy Agency (IEA) Executive Director, Fatih Birol, says that even if market demand recovered, uncertainties still lie ahead due to the scale of global economic recovery and given a likely second wave of the coronavirus.
Analysts warned that OPEC’s increasing production could be ill-timed as demand may decline anytime soon which may lead to another supply glut hitting the market.
Storage may still be a concern as the largest independent oil storage company, Royal Vopak warns it is running out of available space and also warns supply may surpass demand by 700,000 in August and by 2 million by September.