Eksplorasi.id – G20 members decided to take a more active role to stabilize the oil market on Apr. 10, but did not make specific commitments or give a number of potential cuts.
A draft communique from the meeting said the G20 members would “commit to doing whatever it takes, both individually and collectively” to ensure the energy sector makes a recovery. “We welcome the commitment of producers to stabilize energy markets…We call on other producing and consuming countries to complement these efforts.”
On Apr. 9, OPEC and Russia agreed a deal to cut 10 million b/d from global supply, the biggest supply reduction in history.
“The collaboration and size of the proposed OPEC++ unprecedented, so it makes sense both OPEC and G20 are taking their time before any dam-busting announcement. But the oil market does not have time to spare. Some countries have communicated they have pledged shut-ins of millions of bbl of oil, which, if the deal is implemented in May, makes full compliance not feasible,” said Louise Dickson, an oil markets analyst at Rystad Energy.
“Even if in some perfect world we see full OPEC++ compliance and 10 million b/d in cuts, this still leaves an incredible minimum 10 million b/d supply overhang for 2020 second quarter.”
“The proposed OPEC++ cuts alone cannot reverse the deep contango curve of Brent prices in a meaningful or lasting way as storage is needed to remain economical to handle the current and still coming oversupply. So, we aren’t sold that the current oil market optimism – with Brent in the low $30s – is warranted, and still believe that we need to see a bigger contango to pay for all the storage that will soon be needed.”
“Also, and do not be so sure about the actual production cut size. We find it very unlikely that the full 10 million b/d cut will be implemented as May 1 is just three weeks away and cuts of that size take time to realize. The oil machine is not as flexible as just simply turning off the tap or pressing a button.”
Per Magnus Nysveen, head of analysis at Rystad Energy, said: “We have a deal by OPEC+ that was secured today by US saving Mexico’s face. However, the deal looks fragile as there is yet too small commitment from other oil producers including US and Canada. The demand destruction is now as deep as 27 million b/d, so we risk running out of crude storage early May as refineries are now slowing down much faster than producers.”