Yet, while more Iranian barrels may be short-term bearish, it still might not be enough to meet the coming summer demand surge where oil, market spreads are suggesting, has a very tight supply outlook. And there is news that even if Iran does get the green light to produce, the OPEC+ cartel may adjust its output to compensate for those extra barrels.
Overnight Alexander Novak, former Energy minister and now the deputy chairman of the Government of the Russian Federation, says the group, “Need to consider possible oil output growth in Iran, which he says may be approximately 1 million barrels of oil per day. That could be setting the stage for an OPEC cut at its June 1 meeting. Still no word on whether Russia will submit a plan for compensation cuts on its part for its overproduction.
Iran and Saudi Arabia are trying to improve relations, and Russia is talking about an adjustment. It looks like we are headed towards a harmonious OPEC+ meeting, assuming those that have cheated on production offer up some compensation cuts.
Iraq for one may have a hard time doing that, as was pointed out in the Financial Times today that the COVID situation almost brought down the entire Iraqi economy. The FT reported that Ali Allawi, Iraq’s finance minister, found himself in a quandary last year as the spread of coronavirus cut demand for oil and prices tumbled. Allawi’s treasury, which receives more than 90% of its revenues from crude sales and spends 45% of its total budget on salaries and pensions, suddenly didn’t have enough money to pay millions of public employees and retirees. OPEC’s second-largest producer borrowed billions of dollars, mostly from local banks, to bridge the shortfall. But public anger boiled over. The fallout of the virus then battered businesses as their most important customers — public employees — cut their spending. Iraq’s economic fragility was laid bare, the hit to both public and private sectors caused the country’s gross domestic product to shrink 11% in 2020, according to the IMF, and poverty rose amid worsening unemployment.
The FT also points out that, “The International Energy Agency has warned of the drastic impact that pursuing a net-zero emissions target by 2050 could have. OPEC’s share of world production would rise to more than half of the total, as oil and gas supplies become concentrated among a smaller number of countries, but annual per capita income from these commodities could fall by as much as 75% by the 2030s. Yet, this scenario — a huge fall in revenues as demand for Iraq’s oil drops — is not just a pandemic phenomenon, it is the future for oil-producing countries. The FT says that, “Among those least prepared include Iraq, Libya, Venezuela, Equatorial Guinea, Nigeria, Iran, Guyana, Algeria, Azerbaijan and Kazakhstan, according to the World Bank. These nations have not diversified exports or shifted their economies towards non-polluting industries. Most have been mired in war, plagued by widespread poverty, or unable to secure international investment to drive a shift away from fossil fuels. Many of them are also among the most vulnerable to the real-life effects of climate change.”
This also adds to the possibility of global instability if the world moves too fast to get carbon neutral. As I have said before that aggressive policies by the government to move to a carbon-free world will fall mainly on the backs of the poor that will suffer the most in the rush to get to net-zero emissions.
The API crude draw might have been bigger, yet a big draw in Cushing, Oklahoma, and big drawers in products make this a bullish report. The API reported that crude oil supply eased down by 439.00 barrels. Yet, Cushing was down by 1.153 million barrels and gasoline supply down by 1.986, million barrels and distillates by a whopping 5.137 million barrels.
NDTV reports that, “Cyclone Yaas has put India’s oil and gas installations in ‘survival mode.” A major contingency plan has been put in place to mitigate the impact of the cyclone. Cyclone Yaas, equivalent to a category 3 hurricane, is the second severe storm to hit India’s coasts in a span of about 10 days. A major contingency plan has been put in place to mitigate the impact of the cyclone on oil and gas installations, an official statement said. Odisha coast has two major ports at Dhamra and Paradip and a huge oil refinery at Paradip. West Bengal hosts a major port at Haldia.