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Saudi Arabia’s energy minister is keeping his options open as the recovery in oil prices falters, setting a potentially volatile period ahead.
Crude prices fell in early September after traders became nervous that a further potential lockdown to slow the spread of the coronavirus could fracture a fragile recovery in consumption.
But Prince Abdulaziz bin Salman is reluctant to commit to new measures to boost the oil market, telling reporters last week that “anyone who thinks they will get a word from me about what we’re going to do next is absolutely living in La La Land “. .
His only two predictions were that the market would be “nervous” in the coming months and that it would leave speculators “shocked as hell.”
Analysts say the lack of visibility into the market trajectory shows that the world’s largest oil exporter wants to have a variety of options on hand, from the tighter enforcement of record supply cuts agreed to earlier this year by the OPEC and allies like Russia, up to promises of even tighter production restrictions.
Investors are hungry for clarity on whether the so-called Opec + group will change its future supply plans.
The historic cuts of 9.7 million barrels per day agreed in April among the world’s major producers, ending a price war with Russia started by Saudi Arabia, have since fallen to 7.7 million per day. Those cuts are expected to soften further in January 2021 as part of a gradual reduction.
The big question now is whether producers are complying with that reduction. Brent crude, the international marker, rose from less than $ 20 a barrel in April to more than $ 45 in late August, driven by the supply cut deal. But since then they have started to slide again.
Crude fell more than 2 percent Monday to about $ 42, and producers fear another drop.
Local lockdowns in Europe and the increase in cases in large consumers like India are causing concern among OPEC delegates. They also warn that stocks of crude and petroleum products are not depleting as quickly as initially predicted. “There is nothing to do at this time other than follow the same path. But we might have to [act] soon, ”said a delegate.
Global demand fell to a third in April from pre-crisis levels of 100 million b / d, but has recovered and is now expected to be around 94 million b / d in the third quarter, according to the International Energy Agency.
However, last week, the IEA raised some red flags: a slowdown in China’s crude purchases and moves by some of the world’s largest oil traders to start stockpiling oil at sea again.
“The uncertainty created by Covid-19 shows little sign of abating,” the agency said, noting that the northern hemisphere winter will make the trajectory of the virus difficult to predict.
“The recovery has not even been around the world,” said officials from an OPEC + ministerial committee that monitors the historic supply cut deal. They recommended that the expanded group of countries, including Russia, should take “more necessary steps” when necessary. Options, market watchers say, include delaying the reduction in supply cuts and enacting additional cuts above their assigned targets, as Saudi Arabia and other OPEC countries did in June.
Amrita Sen of the consultancy Energy Aspects said that Saudi Arabia and its partners inside and outside OPEC are “hoping for the best, but preparing for the worst.”
“Asian demand, a key destination for Middle Eastern oil, is generally recovering, but consumption in the West is going the other way. It’s very difficult to forecast anything, ”he said.
Prince Abdulaziz last week promised a “proactive and preventive” approach. Meanwhile, Riyadh is trying to tidy up the OPEC house by publicly denouncing countries that it says failed to abide by the terms of the April production cut deal.
If the kingdom needs to persuade Russia, which is willing not to lose market share, to control production once again, allowing countries like the United Arab Emirates, Iraq and Nigeria to exceed their promised levels of production would weaken its position, they said. analysts.
“If everyone meets their share of the cuts now, OPEC + will have much more flexibility to adjust policy if necessary in the future,” said Bassam Fattouh of the Oxford Institute for Energy Studies.
Other wild cards are looming in the coming months. In Libya, rebel forces agreed to lift an eight-month blockade on oil fields and ports, allowing production and exports to resume.
The US presidential election in November could complicate matters further. President Donald Trump forced producers to come to a table ahead of the landmark April deal. A victory by Democratic candidate Joe Biden could reduce political pressure on producers to push the market in the next round of formal talks later this year, observers say.
But in a month when volatile equity markets reflected the risk that the pandemic still poses to the global economy, concerns about demand are dominant.
“The pace of the oil market recovery has slowed and Saudi Arabia wants to be ready to adjust policy if necessary,” said Giovanni Staunovo, a commodity analyst at UBS Wealth Management. “We don’t know how the world is evolving.”
