London — OPEC would have to nearly halve its crude oil production in the second quarter to balance the market, according to the organization's latest analysis, as the COVID-19 outbreak continues to force massive downward reassessments of the global economy.
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Even with a historic global supply cut accord in force, OPEC is unlikely to take such drastic measures, but it appears to be banking on a rapid pandemic recovery in the back half of the year to salve its short-term pain.
OPEC, which pumped 30.41 million b/d in April, now sees the market's demand for its crude coming in at 16.77 million b/d this quarter, it said in its closely watched monthly oil market report Wednesday.
The outlook brightens considerably in the back half of the year, the analysis shows, with the call on OPEC crude rising to 27.89 million b/d in the third quarter and then a robust 31.18 million b/d in the fourth quarter, for a full-year average of 24.26 million b/d.
Efforts by world governments to bolster the economic recovery could boost oil consumption, OPEC said in the report.
"Demand contraction in 2020 can be mitigated with sooner than expected easing of government COVID-19 related measures, and faster response of economic growth to the implemented extraordinary stimulus packages," the report said.
CUTS CAN'T OUTPACE DEMAND DROP
OPEC+ ministers are scheduled to meet via webinar on June 10 to evaluate the market, assess compliance with quotas and decide on any next steps.
Several delegates told S&P Global Platts that they were still waiting to see more data on the coronavirus' market impact before considering any further production cuts and that no discussions on output strategy were underway.
"We have not discussed this issue, at the technical or ministerial levels," one delegate said on condition of anonymity. "It is too early to put this issue on the table and I am not sure that we would have a consensus, especially from the smaller producers."
The 13-member bloc has long viewed itself as the market's primary swing producer, cutting or boosting output to meet the world's needs, but the sweeping scale of the coronavirus infection has prompted the organization to seek help from other major oil producing countries to tackle the supply glut.
OPEC and 10 partners, in an alliance known as OPEC+, have instituted the largest historical collective production cut agreement from May that should see OPEC's output fall about 7 million b/d from April to about 23.4 million b/d, assuming full compliance among the 10 members with quotas and steady output from exempt Iran, Venezuela and Libya.
Core Gulf members Saudi Arabia, the UAE and Kuwait have further committed to claw back an additional 1.18 million b/d in June, bringing that month's OPEC output down to about 22.2 million b/d.
Non-OPEC supply, meanwhile, will average 59.71 million b/d in the second quarter -- a significant fall year-on-year, due to voluntary and financially forced shut-ins by the US, Canada, Brazil, Norway and other countries.
Combined with OPEC NGL output of about 4.82 million b/d in the quarter, global liquids supply would add up to about 87.9 million b/d in May and 86.7 million b/d in June -- far above OPEC's estimate of Q2 demand of 81.3 million b/d, which is down by almost one-fifth from Q2 2019.
COMING DOWN FROM HIGHS
The glut will appear even worse once April's output surge by OPEC is factored in, bloating inventories that will take months if not years to draw down, even with OPEC's expectation that oil demand will rebound strongly in Q3 and especially Q4.
Led by Saudi Arabia, the UAE and Kuwait, which all hit record highs, OPEC production in April jumped 1.80 million b/d from March to a 14-month high, according to secondary sources used by the organization to track member output.
OECD commercial oil inventories as of March were 88.6 million barrels above the five-year average that OPEC has said it is targeting, having risen by 57.7 million barrels in the month, the OPEC report said.
OPEC kingpin Saudi Arabia said it pumped 12.01 million b/d in April, even higher than the secondary source estimate of 11.55 million b/d, according to the report. That is a 2.27 million b/d gain from March, Saudi Arabia said, while the UAE said it raised its production by 510,000 b/d and Kuwait said it went up by 250,000 b/d.
Saudi Arabia's new quota for May and June is 8.49 million b/d, and it has said it will lower production to 7.49 million b/d in June.
|OPEC supply-demand estimates|
|Global oil demand||92.40||81.30||92.28||96.30||90.59|
|OPEC NGLs & unconventionals||4.88||4.82||4.82||4.82||4.83|
|Call on OPEC crude||21.06||16.77||27.89||31.18||24.26|
|Unit: Million b/d|
|Source: OPEC May monthly oil market report|