「KOL Analysis•Bola Akinya」Saudi Arabia and Russia close to Deal on Post-Lockdown Oil Cuts

A marriage of oil-producing nations led by Saudi Arabia and Russia is close to a deal that would extend their overall production cuts through Sept. 1, as ease on lockdown commences

The Organization of the Petroleum Exporting Countries and its Russia-led allies are also debating whether to move up its planned conference call to discuss future output cuts to Thursday, instead of June 9 and 10.

The 23-country group, known as OPEC-plus, agreed to cut productions by 9.7 million barrels a day, following a sharp decline in global oil demand amid the Covid-19 pandemic.

While the current agreement foresees the curbs easing to 8 million barrels a day between July 1 and the end of the year, OPEC kingpin Saudi Arabia is pushing for a deal that would keep the current restrictions of 9.7 million daily barrels, according to delegates in the cartel.

Saudi Arabia, which needs oil prices at $84 a barrel to cover its spending, wants to keep pushing prices above current levels of around $35 a barrel, however, Russia would be satisfied with prices at around $40 a barrel, and its delegates believe the demand for oil is moving faster than expected as areas in China, Europe and the U.S. relax the lockdown restrictions that have hurt oil demand.

US crude imports surge as Saudi oil ‘armada’ arrives Supplies to US jump by almost 1m barrels a day while domestic production slumps Saudi Arabia launched 33 very large crude carriers destined for the US during March and April 28 2020 21.

US oil imports went up last week, based on my projections, trading at $35 a barrel with almost half of the extra crude arriving from Saudi Arabia, as foreign producers took market share from the struggling American shale patch.

The federal Energy Information Administration on Thursday said Saudi supplies to the US jumped almost 1m barrels a day during the week ending May 22, to 1.6m b/d, while commercial imports from all countries soared to 7.2m b/d, almost 40 per cent more than the week before.

The EIA said output dropped to 11.4m b/d in the week ending May 22. Many analysts say production has already fallen to as low as 10m b/d, compared with 13m b/d earlier this year.

Last month, West Texas Intermediate, the US benchmark, traded below zero for the first time in history, sending shockwaves through a shale patch where producers need almost $50 a barrel to make a profit. WTI was up at about $33.72 on Thursday evening.

The crash has dented hopes that the US could establish self-sufficiency in oil supply.

President Donald Trump has repeatedly lauded the USs “energy independence”. But net petroleum imports rose again last week to 1.2m b/d, according to the EIA, well above the level a year ago.

Despite the easing of virus lockdown measures around the country, US oil demand also dropped by about 4 per cent against the previous week, the EIA said. At 16m b/d it was a quarter lower than a year earlier. More than 40m workers claimed unemployment benefits in the US last week, according to the countrys labour department.

The extra oil imports pushed US crude inventories sharply higher. This dug into some storage capacity, but utilisation rates remain well under the high levels that sparked WTIs collapse below zero last month.

Imports from countries other than Saudi Arabian including Canada, Mexico and Opec producers Nigeria and Iraq, also rose last week — and more are coming, according to analysts.

Recommended Oil US oil production drop steeper than expected Saudi imports “are likely to remain high in the next few weeks but they will fall sharply from mid-June,” as the Opec cuts take effect.

[About The Author]

Omobolanle Abubakaris a Forex trader and consultant with more than 20 years of immense experience in Forex Indices, Commodities and Currencies.

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