Deep production curbs by the Organisation of Petroleum Exporting Countries (OPEC) and its allies had helped oil rebound from its plunge below zero in April, but analysts say that it’s a not a comfortable time to pump up the volume at the market.
OPEC and their allies had planned to return supply to the market after the group’s output cuts, even as the notorious Covid-19 pandemic continues to spread across the globe. Reuters reported yesterday that OPEC+ plans to return about 1.5 million barrels a day to the market this August after cutting global supply by roughly 10% when demand plunged as U.S. shale companies are also returning production, with ConocoPhillips the latest to announce plans to bring back oil.
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.
“If oil-producing countries do not continue the co-ordinate cuts, oil prices could again fall below $40. 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” said Jun Inoue, an economist at Mizuho Research Institute in Tokyo.
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 cartel 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.
OPEC has however 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.
By Chibisi Ohakah, Abuja