OIL MARKET WEEK AHEAD: At Long Last, A Recovery in Demand?

OIL MARKET WEEK AHEAD: At Long Last, A Recovery in Demand?

The end of the lockdown is fundamentally spelling a recovery in demand that's likely to travel on over the weeks ahead

The focus of OPEC+ members over the previous couple of weeks has shifted from agreeing on cuts to more aggressively enforcing them, then far Kazakhstan has shown more willingness than a number of the opposite rule-breakers to comply. Although coronavirus remains raging across South America and a few US states are browsing a fresh spike in cases, the top of the lockdown is fundamentally spelling a recovery in demand that's likely to travel on over the weeks ahead. The lower production and therefore the refore the pickup in demand are already being reflected in upticks in WTI and Brent crude prices and the week ahead should support an equivalent trend.

US rig count expected to show 

To say that the erosion of domestic US demand since the outbreak of COVID has been dramatic would be an understatement; it's pushed domestic shale production to verge of collapse . numerous rigs have closed – 690 within the last 12 months – that with only 279 rigs left operational , there's not far more to shut . The rig count onshore has dropped below 200 for the primary time last week and there are only 35 active oil rigs outside the Permian Basin of West Texas and Southeastern New Mexico .

Oil production is notoriously cyclical and also slightly lags behind price moves, as producers attempt to shelter their industry from knee-jerk reactions. Now that WTI prices have somewhat stabilised, surviving shale producers are increasingly saying that they need no more plans to shutter production which at WTI prices above $30, they will weather the storm. Over the previous couple of weeks the drop by rig counts has bogged down and with demand returning , is thanks to correct within the other way . the primary in line for reopenings are larger producers in Texas, but costlier shale basins in North Dakota and Oklahoma also are likely to start out returning on line.

During the recent OPEC+ spat over some members’ overproduction, Kazakhstan was singled out alongside Iraq, Angola, and Nigeria together of the countries that has not been complying with production cut agreements. After subtle (and not-so-subtle) threats from Saudi Arabia , Kazakhstan has committed to chop output by 390,000bbl/day. Ironically, Saudi Arabia might not be Kazakhstan’s largest headache at the present .

The outbreak of the coronavirus has threatened to pack up the country’s largest site, the Tengiz field, which is operated by a gaggle led by Chevron, as 950 workers have tested positive. The outbreak in Tengiz made for nearly 13% of all the cases within the country in late May. The cheek-by-jowl nature of the work , the distant location, and therefore the incontrovertible fact that workers not only work but also sleep in very close quarters makes it nearly impossible to try to to anything about social distancing and also explains why there are similar outbreaks across oil fields in central Asia and Russia. For the instant the news be due Kazakhstan has gone very quiet but it's possible that Kazakhstan’s willingness to suits production cuts in June partially happened because the country’s hand was forced by the virus.

Separately, for the cuts to happen the govt had to cause board not only domestic producers but also foreign investors, as two of the country’s biggest producers, Tengiz and Kashagan, are operated by foreign consortia: the previous by Chevron, ExxonMobil and Lukoil and therefore the latter by local oil and gas producers and by Eni, ExxonMobil, Royal Dutch Shell and China’s CNPC. Now the country has issued individual quotes to grease producers asking them to chop output by around 22%.

In April Kazakhstan produced 31.3 million tonnes of oil and gas condensate, of which 10.2 million tonnes were from Tengiz, 5.8 million tonnes in Kashagan, and 4.2 million tonnes in Karachaganak.