Opec+, the producer alliance headed by Saudi Arabia and Russia, is expected to stick to tapered output cuts to be made at the end of the year, according to the UAE energy minister, who said the group did not anticipate a peak in oil demand before 2040.
“Opec+ have set a plan, and that started with almost 10 million or the 9.7 million barrels [per day] reduction. Volumes have been reduced and it will be reduced again at the end of this year, as we move to 2021,” Suhail Al Mazrouei told an Energy Intelligence Forum panel.
The minister said the group is likely to reduce the output cut to 5.7-6m bpd until April 2022.
Opec+ undertook a historic level of production cuts of up to 9.7m bpd between May and July to reverse a record plunge in demand due to the pandemic. The alliance is currently drawing back 7.7m bpd from the markets.
"That's what we estimated, for what it would take to balance the markets, and we are hoping that countries will slowly increase their production because we don't want to see a spike in one country that leads to others not behaving,” he added.
The group is also convening its joint technical and monitoring committees monthly to oversee compliance among members and enforced mechanisms to prompt laggards to make compensatory cuts. Opec+ is expected to convene the JTC and JMMC on October 15 and 19 respectively.
On Tuesday, Saudi Araba's crown prince Mohammed Bin Salman and Russian president Vladimir Putin called on producers in the alliance to stick to the cuts during a phone call ahead of the meetings.
Riyadh and Moscow “agreed on the importance of all oil-producing countries to continue cooperating and abiding by Opec+ agreement to achieve these goals for the benefit of both producers and consumers,” according to a statement from the kingdom.
On Tuesday, Opec left its crude demand forecast for 2020 largely unchanged in its latest oil market report. Global oil demand is expected to decline by 9.5m bpd in 2020, with overall consumption expected at 90.3m bpd.
Opec also revised its demand forecast for 2021 down by 80,000 bpd reflecting slower growth for OECD and non-OECD countries. Demand growth for next year is expected at a "solid" 6.5m bpd, Opec said.
The minister also said the oil demand has not peaked, despite several energy companies writing off the value of their hydrocarbon assets following the crash in crude prices earlier this year.
"Not before 2040 or so can we expect peak demand [for oil]. We still need a base load. We’re moving away from liquid hydrocarbons towards more gas and more renewables. It will take time for the world to significantly reduce the demand for fossil,” Mr Al Mazrouei told the panel.
The International Energy Agency on Tuesday said the pandemic may usher in the slowest decade of energy demand in a century and the global response to the coronavirus can reshape the energy landscape for years to come.
The Paris-based agency warned of a fragile recovery for oil markets reeling from the economic impact of the pandemic and urged countries to pursue a transition to cleaner forms of energy.
In its latest World Economic Outlook, the International Monetary Fund revised up its estimates for oil prices. The lender expects prices to average $41 per barrel this year and $43.8 per barrel in 2021. Prices are set to increase thereafter to $48, which is still 25 per cent lower than the 2019 average price, due to weaker demand.
However, other heads of energy companies such as Saudi Aramco’s president and chief executive, Amin Nasser noted that a recovery of energy prices is on track.
“The worst is definitely behind us,” Mr Nasser told another panel. "We are seeing a recovery. Most of the demand comes from the developing countries. We see a big pick-up from East Asia, especially China,” he added.
Brent, the international benchmark for crude, was down 0.57 per cent, trading at $42.21 per barrel at 11.31am UAE time, while West Texas Intermediate, the gauge for US oi, was up 0.6 per cent at $39.96 per barrel.
