MOSCOW (MRC) -- Saudi Arabia and Russia appear at loggerheads over an extension to the historic output cut agreement by the so called OPEC+ alliance, just days before the producer coalition is due to hold its much anticipated meeting, reported S&P Global with reference to people involved in the discussions.
The kingdom has proposed a three-month extension of the 9.7 million b/d cut accord, while Russia -- the key non-OPEC partner in the deal -- has countered with one month.
The cuts otherwise are set to be scaled back to 7.7 million b/d starting in July for the rest of 2020.
OPEC+ is scheduled to meet June 9-10 via webinar, but Algerian energy minister Mohamed Arkab - who holds OPEC's rotating presidency for 2020 - has proposed moving the gathering forward to June 4 to help members determine July export volumes.
"I hope there will be an agreement on at least a 1-2 month extension," one delegate said, asking not to be named due to the sensitivity of the talks. "Otherwise, there's no sense to have the (earlier) meeting."
The production cut accord, forged in April after days of acrimonious talks with oil prices crashing, is aimed at bolstering the market against the steep decline in demand caused by the COVID-19 pandemic.
The alliance scheduled its biggest cuts - the largest coordinated supply restrictions in the oil market's history - for May and June, when they figured the worst of the pandemic's effects would be felt.
Prices have rebounded but are still far below desirable levels for many OPEC+ members, and with the global economy only just starting to recover, many members are pushing to maintain the deeper cuts.
EC Secretary General Mohammed Barkindo said June 2 in a commentary posted on the bloc's website that the production cuts so far have prevented a build in global crude oil inventories of some 1.3 billion barrels.
"To navigate the choppy waters that are yet to come as the industry traverses this ocean of volatility, every single industry stakeholder will need to do its part to contribute to this staggering recovery effort," the commentary stated.
Whatever the date of the meeting and its result, compliance will be key to the deal's credibility. The six secondary sources used by OPEC to monitor output, including S&P Global Platts, have yet to report May production figures and are unlikely to do so before a June 4 meeting.
Several delegates have cited the lack of compliance data as reasons not to move the meeting forward. Preliminary production and export reports by some countries have indicated uneven performance.
Russia - the largest non-OPEC participant in the deal - on June 2 said it pumped 8.59 million b/d in May, exceeding its quota by 100,000 b/d. Still that is the closest Russia has come to meeting its commitment under OPEC+ agreements in several months.
Iraq - which has also habitually lagged on compliance in previous OPEC+ deals - on June 1 revealed May crude exports of 3.58 million b/d, just 12,000 b/d below its production quota. This means Iraq will breach its quota by nearly the amount of its internal consumption, which is expected to be around 550,000 b/d, according to sources familiar with the matter.
Iraq's interim oil minister, Ali Allawi, on June 2 cited "technical issues" for his country's failure to cut output down to its agreed cap.
"We remain committed to the OPEC+ deal, and to doing our part towards ensuring a stable and secure global energy market," he said on Twitter.
As MRC wrote previously, global oil consumption cut by up to a third in Q1 2020. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.
Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.
We remind that, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.
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