Daily Management Review

Oil production gets over recent constraints, prices expected to fall again


Oil prices may come under pressure in the coming weeks, as several factors supporting the quotes are not in force anymore.

The Norwegian oil industry and Lederne's union reached an agreement on October 9 to end a strike lasting since September 30. The workers were unhappy with the cut in wages following the decision of oil companies to transfer some of the management functions from offshore facilities to onshore control centers. By the end of the strike, it had already led to a decline in production at several fields with a combined volume of 330 thousand barrels per day (bpd).

In addition, if the parties failed to reach an agreement, from October 14, production could be stopped at one of the largest fields in the North Sea, Johan Sverdrup, which would lead to a decrease in total production by 1 million bpd. The possibility of such an outcome was one of the main drivers of oil prices, which rose from a low of $ 39 per barrel of Brent on October 2 to $ 43.5 on October 8. However, the prices fell by 1.3% on the news of the end of the strike on October 9.

Hurricane Laura in the Gulf of Mexico was another important factor behind the rise in oil prices last week.

The hurricane, according to the US Bureau of Safety and Environmental Control, led to a halt of 92% of production in the region, or 1.7 million bpd, as of October 10. However, already on October 11, companies began to return personnel to the platforms, and full recovery of production is a matter of several weeks.

At the same time, on October 11, the Libyan National Oil Company announced the lifting of restrictions on the production of the country's largest Sharara field as a result of negotiations between the parties to the Libyan conflict. In reality, this means that production in the country could grow by 100,000 bpd in the coming days, and by another 200,000 bpd by the end of the month, according to Platts.

All these events mean the return to the market of about 2.5 million bpd of production, or almost 3% of global demand.

This is happening in a situation where in most countries there is an increase in the number of coronavirus cases, and many analysts do not exclude the return of at least part of the spring restrictions, which will negatively affect oil demand. In addition, in the fourth quarter, the demand for oil always decreases due to the end of the holiday season in the Northern Hemisphere.

At the same time, the current quotas of the OPEC + countries, which have agreed to reduce oil production, in January should be revised upwards as planned, which will allow another 2 million bpd to enter the market. In early October, rumors emerged that Saudi Arabia might propose to adjust the parameters of the OPEC + deal amid increasing risks of a second wave of coronavirus.

source: reuters.com