Opec to meet in the shadow of a stalling oil market

It was meant to be the week when Opec nations gathered in Baghdad to celebrate the cartel’s six decades as a dominant force in global oil markets.

Instead, Opec and its allies will convene online and reflect on whether the coronavirus has thwarted their best efforts to keep the market afloat.

After reviving crude prices from an unprecedented collapse over the spring, Opec is seeing the recovery stall and fuel demand falter as the deadly pandemic surges again. Prices slipped below $40 a barrel last week for the first time since June.

On Thursday, Saudi Arabia and Russia — the leading members of the alliance — will chair a monitoring meeting to assess whether the vast production cuts, which they started easing in August, are still staving off an oil glut. New signs of exporters reneging on the deal aren’t helping.

“There were some major assumptions built in on where demand and the recovery would be now, and it just hasn’t happened,” said Mohammad Darwazah, an analyst at research firm Medley Global Advisors. “If I’m Opec and if I’m Saudi Arabia, I would be concerned.”

The relapse is a source of acute financial distress for Opec nations, from poorer members such as Nigeria and Venezuela — which need crude prices far above current levels to cover government spending — all the way up to wealthy Gulf monarchies such as Kuwait.

Riyadh and Moscow had expected that a resumption in global economic activity, combined with the supply curbs, would sharply deplete the hoard of surplus oil inventory accumulated during lockdowns. But there are growing signs the market isn’t tightening so fast.

The peak holiday driving season has passed in the US, yet rush-hour traffic is still sparse and crude inventories are stubbornly high. In India, the third-biggest consumer, transport fuel sales remained 20% below year-ago levels last month. Even in China, where refiners binged on crude at the height of the crisis, buying has slowed.

Trading houses are hiring oil tankers on long-term contracts once again to store surplus barrels.

And Libya, which is exempt from the output cuts because of a civil war that’s all but shut down its oil industry, may resume exports soon, according to US officials. The North African country’s production has slumped to less than 100,000 barrels a day from 1.1-million at the end of last year.

The downturn isn’t yet severe enough for Opec to ...
13 Sep 2020 11AM English South Africa Business News · News

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