Weakening demand by major oil consumers such as China and the U.S. may lead to even deeper output cuts from Saudi Arabia according to analysts at Standard Chartered
cut but taper off their extra cut by restoring 250,000-500,000 barrels a day of halted production in September. A week later, Saudi Press Agency published confirmation that the country will indeed extend its 1 million barrels per day oil output cut into September, but with an important nuance that was largely missed by much of the media coverage that the cut “can be extended or extended and deepened”.
Weakening demand by major oil consumers might also persuade Saudi Arabia to cut even further. The latest data coming from China shows that crude oil imports fell 2.412mb/d m/m to a sixth-month low of 10.429mb/d as stockpiling wanes. It’s not clear if this is the beginning of a downtrend since June’s imports were the second highest on record as inventory building hit a torrid clip. To be fair, the y/y increase in crude oil imports in July was a hefty 1.
But the EIA appears to be less optimistic. The agency estimates that the call on OPEC crude will average 28.1mb/d in H2, 1.4mb/d less than StanChart’s model; 2.0mb/d less than the International Energy Agency model and 2.3mb/d less than the OPEC Secretariat model. StanChart has predicted large deficits in August and September but zero surpluses until the seasonal demand falls in January whereas EIA has predicted several surpluses during that period. The analysts have opined that Saudi Arabia might decide to wait till the statistical fog clears before deciding whether or not to deepen its production cuts.
The natural gas market is, perhaps, even harder to predict right now because prices are flying despite fundamentals remaining weak and supply plentiful. European natural gas prices, as traders panicked over the possibility of reduced LNG supply from Australia, the world leading supplier of the commodity. The European benchmark, TFF, jumped to as high as €42 per megawatt hour in Wednesday intraday trading, 35% higher than the previous day, and its highest point since mid-June.
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