Rystad: Uncertain OPEC should keep current cuts flat

OPEC nations may be at odds with each other, but all they need to do is extend their current crude oil cutbacks through the end of the year to help keep the market relatively balanced, according to a new report.

OPEC and its allies, including Russia, can maintain their current cuts of 1.2 million barrels a day and not reduce outputs any more because there will be a crude oil demand surge later this year from changing shipping fuel standards worldwide, noted the Norwegian research firm Rystad Energy.

The new International Maritime Organization low-sulfur fuel mandates, set to take effect in 2020, will trigger crude demand spikes to make more low-sulfur fuels, diesel and marine gasoil, Rystad said.

“We expect crude demand to accelerate thanks to the upcoming IMO 2020 regulations later this year, and OPEC will likely not have to cut production as much as the call on OPEC suggests,” said Rystad chief oil markets analyst Bjørnar Tonhaugen.

“Having said that, there will not be room for the cartel to increase output for the rest of 2019 in our view,” he added.

The world is awash in crude oil largely from rising the rising output from U.S. shale, especially in West Texas’ booming Permian Basin. The Organization of the Petroleum Exporting countries, led by Saudi Arabia, cut back their supplies by 1.2 million barrels a day for the first six months of 2019 to help balance the market.

With crude prices again depressed from rising U.S. supplies and weakening global demand from the U.S.-China trade war and other concerns, OPEC and Russia appeared on track to agree to an extension of the cuts.

But rising tensions between the Saudis and Iran – including last week’s alleged attacks on tankers carrying Saudi oil – have thrown everything asunder. OPEC was scheduled to meet next week to decide on cutbacks, but they’ve struggled to even agree to a meeting date.

Still, as Rystad noted, all they have to do is agree to stand pat for now.

Of course, IMO 2020 won’t help solve all. As the regulations trigger a spike in demand for diesel and other shipping fuels, it could exacerbate a glut in other fuels like gasoline and jet fuel. If refineries start churning out more diesel they also need to produce more gasoline, for instance.

The full version of this article first appeared on the Houston Chronicle – an Energy Voice content partner. For more from the Houston Chronicle click here.

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