By Adedapo Adesanya
Crude prices belonging to members of the Organisation of the Petroleum Exporting Countries (OPEC) did not react positively to the announcement that the second-largest producer, Iraq, was promising additional cuts of around 400,000 barrels per day this month in order to compensate for the lack of compliance with the OPEC+ agreement in the previous months.
The average price of the basket of 13 crudes stood at $44.87 per barrel on Friday, August 7 compared with $45.17 the previous day, according to the latest OPEC Secretariat calculations.
Iraq has been the least compliant member of the OPEC+ production cut pact since it was first launched in January 2017.
The oil-dependent nation has been promising for months that it would reduce its oil production and fall in line with its quota—something it hasn’t done since 2017.
The OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Djeno (Congo), Zafiro (Equatorial Guinea), Rabi Light (Gabon), Iran Heavy (Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).
When OPEC+ extended the record production cuts of 9.7 million barrel by one month through the end of July, the coalition agreed that all countries in the pact should comply 100 per cent with their quotas, and those who have not, should be compensating for lack of compliance by overachieving in the cuts in July, August, and September.
Iraq promised in June it was committed to the voluntary oil production adjustments of June and July 2020, as well as the voluntary adjustments for the period following the end of July, despite the economic and financial challenges but latest surveys showed that it did not make progress through July.
The producer alongside Nigeria didn’t make much progress on moving toward higher compliance in July which saw an increase in output following the halt of additional cuts by the Gulf states producers, Saudi Arabia, the United Arab Emirates, and Kuwait.
In other OPEC related news, China and India, which have always been the most dependable and by far the biggest outlet for OPEC+ producers, may disappoint the suppliers in the second half of 2020 as demand looks to weaken further.
India, one of the fasting growing oil markets in Asia in recent years, is expected to end 2020 with its oil demand slipping into the red, a trend not seen for nearly two decades. India’s oil demand is expected to be down 115,000 barrels per day year-on-year in H2 2020, and whole-year demand will be down by 405,000 barrels per day, year-on-year.
In China, crude oil imports surged 34.4 per cent year on year to hit a record high of 12.99 million barrels per day in June and is set to remain high in July. However, plagued by high crude stockpiles and weak domestic refining margins, China’s crude shopping spree is about to come to a halt from August.
This may hit price differentials for various OPEC+ export crude grades in the coming months.
Modupe Gbadeyanka