Crude oil headed higher this week after a joint meeting of the world's largest producers' cartel to rein in overproduction was organized within days of the Organization for the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) cutting their demand forecasts for this year.
West Texas Intermediate futures fell by 0.8% to $40.64, extending its gain over the past week to about 9%. Its international counterpart, Brent crude, dropped by 1.3% to $42.74. Earlier in the session on Friday, both grades were trading higher.
Citing independent data, Commerzbank said Friday the United Arab Emirates, one of Saudi Arabia's closes allies, produced and exporter "significantly" more oil than agreed of late. Other countries such as Iraq, Nigeria, and Angola, which also produced more than agreed between May and July, will have to make "compensatory cuts" until the end of September despite their "recent good production discipline."
"This deadline is now likely to be extended until the end of November or even December," Eugen Weinberg, head of commodity research at Commerzbank, said. "If these additional cuts are implemented, the feared production surplus on the oil market could be avoided and stocks reduced considerably."
From May 1 to the end of July, OPEC and non-OPEC members led by Russia have 9.7 million barrels per from their joint output in response to the collapse in demand amid the COVID-19 pandemic. From Aug. 1 onwards, the OPEC-plus alliance has been taking 7.7 million barrels out to help stabilize the market, which saw prices drop below $20 for both grades in April.
Weinberg said a role in this is also of production outside the cartel, referring to the US, where output increased from 10 million barrels per day in May to more than 11 million barrels per day in July and exceeded estimates set out by the US Energy Information Administration.
In its monthly oil market report, the International Energy Agency cut outlook by 300,000 barrels per day to 91.7 million barrels. The agency said weaker demand comes as coronavirus infections continue to surge, prompting renewed lockdown measures while aviation demand remains weak. OPEC lowered its estimate for average 2020 demand by 400,000 bpd to 90.2 million bpd, down from around 100 million bpd in 2019, mostly due to lower imports by India.
The Energy Information Administration said Wednesday crude stockpiles plunged by 4.4 million barrels during the week that ended Sept. 11, surprising the market. According to FXStreet, the analysts had expected an increase of 1.27 million barrels.
In a research note Thursday, Goldman Sachs analysts led by Damien Courvalin reiterated their $49 per barrel Brent forecast for year-end, as they continue to expect global inventories to draw in September and project a fourth-quarter deficit of 3 million barrels per day.
"Still low US activity and recent Chinese guidance on commodity stockpiling next year further support our forecast for a tightening market in 2021, with our Q3, 2021 Brent forecast of $65," Courvalin said in the note.
The US oil rig count slipped by one to 179 in the week to Sept. 18, down for a second week and hovering close to the lowest since 2005, according to data compiled by Baker Hughes. The combined oil and gas rig count rose by one to 255, with gas rigs also increased by two to 73. In Canada, the oil rig count rose by 11 to 30, and the gas rig count by one to 34. As a result, the aggregate count for North America was up by 13 to 319, compared with 987 a year ago, the data showed.
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