Saudi Arabia has pledged to deliver an “extraordinary” production cut in June, but it’s the U.S. that will be the biggest contributor to global supply reductions, the IEA said Thursday.
The International Energy Agency’s monthly oil report estimated that by year-end, the U.S. oil production could be 2.8 million barrels per day (Mmbpd) lower than at the end of 2019.
The supply overhang, low oil prices and very limited storage capacity are forcing U.S. crude producers to shut-in wells, Kallanish Energy reports.
“For Saudi Arabia, the (annual) fall will be 0.9 Mmbpd assuming 100% compliance with the Opec+ deal and that the extra voluntary cut applies only to June,” the IEA said.
On Monday, Saudi Arabia announced it would cut an extra 1 Mmbpd from its production in June, leading to a 4.4 Mmbpd reduction from April’s record level –at roughly 12 Mmbpd.
Assuming full compliance under the Opec+ agreement and factoring in declines in other countries, the IEA forecasts a supply drop of 12 Mmbpd in May, compared with April. This would take global oil supply to a 9-year low of 8.8 Mmbpd this month.
Non-Opec supply is already 3 Mmbpd lower than at the start of the year, mainly due to declines in the U.S. and Canada.
Demand is starting to show slight improvement signs with the easing of lockdown restrictions. This has led the IEA to revise upwards its global oil demand forecast for the second quarter. However, the estimate is still sharply down on last year by 19.9 Mmbpd.
The Paris-based agency estimates that at month-end, the number of people living under some form of confinement will reduce to 2.8 billion, from a recent peak of 4 billion. This would support demand growth, but the risk of a resurgence of Covid-19 remains a major risk factor for the oil markets.
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