Norway to Cut Crude Oil Production for First Time in 18 Years
May 1st, 2020
According to a Reuters survey, OPEC’s output in April increased to the highest level since March of 2019. Output by the 14-member group in April averaged 30.32 million barrels per day. The largest increase in supply came from Saudi Arabia, which produces a record 11.3 million barrels per day. The UAE also increased its production to 3.85 million bp. Kuwait and Nigeria also increased their output. This news shows how aggressively countries were producing crude oil prior to the cuts that start today May 1, 2020.
Crude oil and refined product prices rose yesterday except the RBOB April futures contract, which fell by 4% in some part due to the expiration of the ULSD and RBOB contracts yesterday. For the month, WTI crude oil was down 8% whereas Brent crude oil prices rose by nearly 11%. Since the start of 2020, WTI crude oil prices have fallen by 70% and Brent crude oil prices have fallen by 65%.
Norway, Western Europe’s largest oil producer, said the country will cut output for the 1st time in 18 years by 250,000 bpd in June and by 134,000 bpd in the second half of 2020.
Conoco Phillips also announced a voluntary oil cut of 420,000 bpd in June, after reporting a loss in the first quarter.
EIA reported on 4/29/2020 that refinery utilization capacity rose by 2.0% up to a total of 69.6%, as much lower rate than last year’s 89.2% and lower than 2 years ago at 91.1%.
Refinery runs (inputs) rose last week up to a total of 12.761 million bpd for the week ending April 24th. Refinery runs last year were at 16.446 million bpd and 2-years ago were at 16.561 million bpd for the same week.
Product supplied by refineries (implied demand) rose for distillates and gasoline this week. Both gasoline and distillates implied demand remain well below normal versus last years 4-week average and cumulative implied demand to date. Gasoline demand is currently still near a 25 year low in the US due to the coronavirus.
There have been several stories this morning about President Trumps ultimatum to Saudi Arabia about cutting oil production as a big part of their change of heart about their price war with Russia. Reports indicate that President Trump gave the Saudi Crown Price Mohammed bin Salman an ultimatum on an April 2ndphone call. President Trump said that unless OPEC started cutting production, he would be powerless to stop lawmakers from passing legislation to withdraw US troops from the country.
The crude producers and refineries are all cutting back as the price decline impacts energy companies. We are at in the begging stages of an unprecedented cut to production in the coming months. This is what is needed to begin to balance supply but there is a huge supply overhang to work through and that will take time. The increase in demand that will eventually come, and the declines in production will eventually lead to supply and demand getting closer to a balance. But this will be a rocky road with some hiccups along the way and it is very likely that demand will get ahead of production on the other side of these shutdown and support the next bullish trend.