Saudi Arabia, Russia committed to oil market stability

Saudi Arabia and Russia are firmly committed to achieving oil market stability and expediting a rebalancing of the market, the energy ministers of the two countries said in a joint statement on Wednesday.

Saudi energy minister Prince Abdulaziz Bin Salman and Russian counterpart Alexander Novak held a phone conversation as part of their consultations on oil market developments, the statement said.

“We are also pleased with the recent signs of improvements in economic and market indicators, especially the growth in oil demand and the ease in concerns about storage limits as various countries around the globe begin to emerge from their stringent lockdowns,” the ministers said.

They said they were “confident that our partners within Opec+... will comply with the Opec+ agreement.” Opec and its allies, a group known as Opec+, agreed last month to reduce output by 9.7 million bpd for May and June, a record production cut.

Saudi Arabia on Monday said it would voluntarily deepen oil output cuts from June by 1 million barrels per day, saying the new reductions were designed to expedite draining a global supply glut and rebalancing the oil market.

Kuwait and the United Arab Emirates both joined Saudi Arabia and also pledged to cut more than their commitments under the Opec+ supply pact by a total of 180,000 bpd.

The joint statement said Novak welcomed the additional voluntary substantial production cuts made by Saudi Arabia and the steps that United Arab Emirates and Kuwait took to support Saudi efforts. The statement said such action was needed to help to expedite the rebalancing of the oil market.

Producers will slowly relax the production curbs under the Opec+ agreement after June, but supply reductions will remain in force until to April 2022.

Sources told Reuters this week that OPEC and its allies want to maintain existing oil cuts beyond June rather than scaling them back to help to shore up prices and demand, which has been hit by the coronavirus pandemic.

Meanwhile, Opec on Wednesday again slashed its forecast for global oil demand this year as the coronavirus outbreak causes a global recession, although it said record supply cuts by the group and other producers were already helping rebalance the market.

The Organization of the Petroleum Exporting Countries now expects global demand to contract by 9.07 million barrels per day (bpd), or 9.1%, in 2020, it said in a monthly report. Last month, Opec expected a contraction of 6.85 million bpd.

Oil prices have collapsed in 2020 with benchmark Brent hitting a 21-year low of $15.98 a barrel on April 22.

To tackle the drop, Opec and its allies agreed to a record supply cut, while the United States and other nations said they would pump less. Opec said these measures were already helping.

“The speedy supply adjustments in addressing the current acute imbalance in the global oil market have already started showing positive response, with rebalancing expected to pick up faster in the coming quarters,” Opec said in the report.

Oil has recovered to $30 a barrel from the low last month and held onto an earlier gain after the report’s release.

Opec expects this quarter to see the biggest drop in demand and lowered its demand forecast for the second quarter by 5.4 million bpd. Downside risks remain for consumption in the United States, Europe and South Korea, Opec said.

Opec lowered its estimate of global economic growth in 2020, forecasting a contraction of 3.4% and saying the coronavirus crisis “has caused a recession in the global economy as well as an unprecedented oil demand shock.” The supply pact agreed last month involves OPEC, Russia and other allies, a group known as Opec+. The group agreed to cut output by 9.7 million bpd in May and June, starting on May 1.

In its report, Opec said its oil output in April rose, as some countries had ramped up production following the collapse on March 6 of a previous Opec+ supply deal.

Opec boosted supply in April by 1.8 million bpd to 30.41 million bpd, according to secondary sources cited in the Opec report, due to extra barrels from Saudi Arabia, the United Arab Emirates and Kuwait.

Saudi Arabia told Opec it pumped at a record 12 million bpd.

Oil prices edged higher on Wednesday, reversing earlier losses, and Brent held near $30 a barrel as potential Opec+ plans to deepen supply cuts were tempered by demand concerns exacerbated by a possible second wave of coronavirus infections as countries ease lockdowns.

Brent crude was flat at $29.98 a barrel by 1332 GMT, after hitting a low of $28.92 a barrel earlier.

Agencies