16 May 2020
New Delhi: The bigger global effort to stabilise oil prices involving all major oil producers, including the US has started showing its impact with global crude oil prices remaining steady since the big fall in April.
Benchmark Brent crude is hovering over $32 a barrel now while US crude WTI, which fell to the historically low level of minus -- $37.63 a barrel, is now at over $29 a barrel. The price has been steady for the last couple of weeks largely on account of a slight pick up in demand owing to the gradual opening of the economies across the world facing Covid-19 lockdown. Also, the sustained efforts of big oil producers to cut production to stabilise the oversupplied market is now being results.
According to a report by ICICI Securities, Iraq and Kazakhstan have finally begun output cuts and it now appears OPEC+ output would be down 9.4 million barrels of oil per day (mbpd) month-on-month in May. Saudi Arabia, UAE and Kuwait have announced additional cuts of 1.18 mbpd suggesting OPEC+ output may be down 1.7 mbpd in June, 2020. US oil output last week at 11.6m b/d is down 1.44m b/d from the recent peak. US oil rig count is down by 57 per cent over the last eight weeks suggesting output decline would continue.
Moreover, US crude inventory was down by 0.7m b/d last week after rising by 104m bbls over the preceding 15 weeks. US oil demand last week was up 3m b/d (22 per cent) from the recent lows and down just 14 per cent YoY.
"Thus, recent data suggests that output cuts and demand recovery are gathering pace. It augurs well for oil price and ONGC's share price outlook," the brokerage said in its report.
The International Energy Association (IEA) has also raised its CY20 and Q2 demand estimates by 0.7-3.2m b/d due to better-than-estimated mobility in OECD countries and likely fall in the population under the lockdown to 2.8bn by end-May from 4bn at peak.
Moreover, global demand is expected to recover by 3.9m b/d month-on-month and supply to reduce by 12m b/d month-on-month in May 2020. IEA has said that this indicates that supply surplus may contract to 10.4m b/d in May 2020 from 26.3m b/d in Apr'20. Further, supply surplus should contract in June 2020 as OPEC+ output declines by 1.7m b/d MoM and there is a further recovery in global demand.