Abu Dhabi National Oil Co. increased oil output to 4.03 million barrels per day on April 1 from 3.52 million bpd in March, ahead of a surprise meeting of the OPEC group and partners on Monday to “stabilise the oil market,” which has been rocked by a price war between Saudi Arabia and Russia.
The meeting of OPEC plus group called by Saudi Arabia through video conferencing comes on the heels of a US-brokered deal that could result in both Saudi Arabia and Russia cutting output by 10 million to 15 million bpd, representing 10-15 per cent of global supply.
Adnoc’s decision last month to raise output from April is in line with a similar move by Saudi Arabia to raise production to 13 million bpd after OPEC and its allies failed to reach a deal on production cuts when Russia refused to tighten supply. Since then, oil prices have tumbled by almost 27 per cent to an 18-year low amid a fall in demand and a looming supply glut as the global economy got battered by the coronavirus pandemic.
On Thursday, President Donald Trump said he had brokered a deal that could result in Russia and Saudi Arabia cutting output, triggering an instant oil price rally. Brent crude futures surged by 7.0 per cent, or $2.10, at $32.04 per barrel on Friday.
Analysts at MUFG Bank said while an accord between OPEC and partners is on the horizon, it is unlikely to raise oil prices near-term. Even if there is a rally, it will be short-lived.
“President Trump’s oil tweet has raised prospects of a global coordinated supply cut. While the headline of unprecedented supply cuts is significant, it remains highly uncertain on whether such a production will be realised, specifically in relation to its timing, its nominal magnitude and allocation amongst countries,” said Ehsan Khoman, director and head of Mena Research and Strategy, MUFG Bank.
“As such, we maintain our view that the unprecedented oil price collapse is not yet over and we don’t rule out Brent sporadically testing cash-costs levels below $20/b this month, but bouncing back and ending the second quarter at $32/b as Covid-19 slowly ebbs out of the market and the ballooning oversupply begins to ease,” said Khoman.
“It is difficult to see the current OPEC+ group cutting output by at least 10 million bpd – the scale of the reduction would be just too much for the group to handle,” ING said in a research note.
“Saudi could drop production down to around 8.5 million bpd but would likely be reluctant to go below that level because of the desire to maintain associated gas production, while Russia will likely look for some measure of sanctions relief from Washington, said Helima Croft, global head of commodity strategy at RBC Capital Markets.