OPEC+ output cut ease unlikely to unbalance oil markets amid demand recovery: PAJ chief

Tokyo — The OPEC+ decision Dec. 3 to ease its output cut by an initial 500,000 b/d in January is unlikely to unbalance oil markets amid hopes for oil demand recovery from the early introduction of coronavirus vaccines, Petroleum Association of Japan president Tsutomu Sugimori said Dec. 4.

The deal, announced Dec. 3, calls for the OPEC+ alliance to boost production by an initial 500,000 b/d in January, after which ministers will meet monthly to determine whether to tweak that for the month ahead.

The producer group, which controls roughly half of global crude production capacity, is currently cutting 7.7 million b/d from November 2018 levels.

Now the cuts will scale back to 7.2 million b/d from January and then be fine-tuned each subsequent month. No date has been set for the January meeting.

In a statement, Sugimori said the level of the output cut ease was "small" and it "would not unbalance the [oil] supply and demand balance significantly."

"In the market, there are greater hopes for the oil demand recovery from such factors as an early implementation of COVID-19 vaccines," he added.

TIGHTER OIL SUPPLY

In an online briefing to its customers Dec. 4, Idemitsu Kosan, Japan's second largest refiner, said it expects to see a tightening of the crude oil supply and demand balance in 2021 amid "remarkable" oil demand recovery in the region.

"While crude oil supply from the Middle East, which accounts for roughly 50% of the OPEC+ production cut, is getting squeezed, there is a remarkable demand recovery in Asia so that we expect to see tightening of the Asia supply and demand balance next year," Shingo Okutsu of Idemitsu Kosan's crude oil section at its crude & chemical feedstock department said.

"Therefore, we believe there will be even more opportunity for crude oil inflows from US, European and West African producers into Asia."

COVID-19 VACCINE HOPES

The recent developments and moves to implement possibly effective COVID-19 vaccines have raised hopes for a recovery in transport fuels demand, which has plummeted in the wake of the pandemic.

In the UK, Pfizer's COVID-19 vaccine was given the green light by British Prime Minister Boris Johnson Dec. 2 to begin mass inoculation by early next week; the vaccine is said to be 95% effective in preventing illness.

The talk of a possible and highly effective vaccine has supported FOB Singapore jet fuel/kerosene cash differentials, which surged 13 cents/b or 54.16% day on day to a discount of 11 cents/b at the 0830 GMT Asian close Dec. 3, S&P Global Platts data showed.

The pandemic has crippled air travel demand in 2020 and sunk cash differentials as many international flights remained grounded on strict border controls, onerous travel restrictions and low passenger confidence. At its lowest, the FOB Singapore cash differential plunged to MOPS minus $4.67/b on May 4, Platts data showed.