London
Whether or not OPEC+ oil producers formally agree to extra oil output curbs, rapidly filling storage capacity and plummeting demand due to the coronavirus crisis may force them to cut more.
With crude consumption collapsing, the Organization of the Petroleum Exporting Countries, Russia and other producers, a group known as OPEC+, is due to implement a deal to cut supply by a record 9.7 million barrels per day (bpd) from May 1.
But that unprecedented deal to withdraw about 10% of global supply already looks inadequate when demand has plunged by as much as 30% and the world is possibly just weeks away from running out of storage space for the surplus.
Vopak, the world’s biggest independent storage company, said on Tuesday its tanks were almost full.
Tanks at Cushing, the delivery point for the U.S. crude futures contract, will be full in a few weeks, analysts say. “We have to cut down, … with or without OPEC output cut deal,” Mele Kyari, the head of Nigeria’s state-owned oil firm NNPC Group, told the African nation’s Premium Times newspaper.
He said Nigeria would have to cut production because it was hard to find anywhere to put the oil. An OPEC source told Reuters it was “logical” to expect the market to force more cuts on OPEC+ producers.
As much as 17 million bpd of supply could be taken out of the market this spring, estimated Jim Burkhard at IHS Markit, a research firm, due to production cuts and other shutdowns.
Energy Aspects expects imminent shut-ins in the United States to amount to at least 1.3 million bpd, in addition to cutbacks already announced by the United States this month when OPEC+ was working on its deal.
“The deep contango will now compel oil producers to reduce output immediately, financially and logistically,” Energy Aspects wrote, referring to a market structure where spot prices are lower than prices for oil delivered at a later date – which usually encourages storage unless there is no space left. The consultancy forecast U.S. production would decline by 710,000 bpd year on year in 2020.—Reuters
