OPEC oil production increased by 1 million barrels per day in the month of July, as the cartel reduced its production cuts and major gulf members also ended their added voluntary cuts, as the body plans to ease production cuts by 7.7 million barrels a day.
The body pumped an average of 23.32 million bpd for the month of July, which is over 900,000 more than June when OPEC production hit its lowest level in 20 years.
The organization agreed to reduce production by 9.6 million barrels as the pandemic affected demand, leading to record price lows in April. With the rising recovery in demand after April’s lows, OPEC agreed to increase production from a cut of 9.6 million barrels to 7.7 million barrels a day from August. The reduction in cuts was backed by both Saudi Arabia and Russia, including other participating oil ministers in the virtual conference.
Saudi Arabia saw the biggest increase in production, pumping close to 8.4 million bpd, which is up 850,000 from their June quota. Meanwhile, Nigeria and Iraq did not add any further cuts to their production in July after both nations achieved most of their quota compliance for the month. Nigeria has also promised to comply with it production quota for the coming months.
Total compliance for the month of June for production was revised up to 111%, according to Reuters.
IEA Executive Director, Fatih Birol, says that even if market demand recovered, uncertainties still lie ahead due to the scale of global economic recovery and if we might see a second wave of the coronavirus.
Analysts warn that OPEC increasing production could be ill-timed as demand may decline anytime soon which may lead to another supply glut hitting the market.
Global oil markets have swung into deficit after months of surplus, with demand exceeding supply in July by about 2 million barrels a day, according to Rystad Energy A/S, a consultant based in Oslo. That’s paring some of the inventory glut amassed during the first half of the year.
Although Rystad Energy says that global oil demand surpassed supply by 2 million barrels a day in June, storage may still be a concern as the largest independent oil storage company, Royal Vopak warns it is running out of available space and also warns supply may surpass demand by 700,000 in August and by 2 million by September.
What this means
Oil demand largely depends on a vaccine cure for the pandemic as COVID-19 second wave rebounds are inevitable at this point. If supply exceeds demand due to reduced economic activity, OPEC+ may need to consider further extended production cuts. Nigeria’s economy which is heavily dependent on oil would need to also consider even more alternatives to funding the country’s budget if a vaccine is not available soon.
The government has implemented a few taxation policies like the newly revised stamp duties, but more economic policies, hopefully looking to take advantage of the African Continental Free Trade Area (AfCFTA), would be needed to increase Nigeria’s productivity.