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Monday , October 26 2020

OPEC will not leave the market unattended

A strong warning was issued by Saudi oil minister last week not to let oil traders enjoy speculating and taking a position in directing the oil prices. It will not allow any cheating of the OPEC quota structure, and is expecting full compliance from all 23 members of OPEC-Plus irrespective of the closeness in its relationship.

Kamel Al-Harami

OPEC quotas must be respected and the production cut of 7.7 million barrels per day must be adhered to.

There are more than four or five countries that are not fully adhering to the last-agreed OPEC quota of more than 180,000 barrels per day, including Gabon, Congo, and the United Arab Emirates. However, the UAE has claimed that it will rectify the situation in the coming months; perhaps like the actions taken by Iraq and Nigeria.

In response to OPEC-Plus’ pledge of further monitoring and the full adherence of the oil market, the oil price has climbed up to register a good healthy level of $ 43 per barrel. The market is awaiting more positive news particularly of better demand, which is not forthcoming.

From the demand aspect, the picture however does not look bright, as refineries are closing down in different parts of the world and raising the white flags perhaps forever. Refiners are permanently processing plants in Asia and North America and facilities in Europe. The prospects for fuel demand are no longer there following the COVID-19 crisis… it is alarming particularly in Asia.

The cut in demand by more than 30 percent globally is assumed beyond recovery, and the rate of travel activity may never return. Australia is offering incentives of $ 2 billion for over ten years to keep the refineries running. It may share in investments for building storage as part of a long-term security plan. BP, ExxonMobil, Viva Energy and Ampol have all welcomed the idea, but without commitment to keep the plants open.

Similar situation is seen in Japan with Eneos Holdings which plans to close in October the biggest oil refinery of 115,000-barrel production Osaka Refinery that it owns with PetroChina. Shell will permanently shut down its 100,000-barrel-per-day refinery in the Philippines. Similarly, New Zealand is planning to close down its only refinery by the end of next year. The same scenario looms certain in European plants particularly in Netherlands, France, and Scotland which is on the list of potential closures.

Certainly, the picture of the oil market does not look good as neither the demand rate is picking up nor is the vaccine against COVID-19 in the horizon, as well as the possibility of a second wave of COVID-19 in the near future.

OPEC and its partners must issue strong warnings for full compliance, as well as another warning to the oil traders against betting heavily in the oil and making it “jumpy”. The latter is hard to achieve, as oil and market traders have their own masters and players with their own rules and traditions.

By Kamel Al-Harami
Independent Oil Analyst
Email: naftikuwaiti@yahoo.com

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